1. Dr. Varadraj Bapat Module 2. Financial Statements

2. Dr. Varadraj Bapat Financial Statements Introduction Balance Sheet Elements of Balance Sheet

3. Dr. 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.

4. Dr. Varadraj Bapat General purpose Financial Statement examples   Balance Sheet   Profit and Loss A/c   Cash Flow Statement   Fund Flow Statement   Segment Revenue Report

5. Dr. Varadraj Bapat Specific purpose Financial Statement examples   Departmental Budget   Computation prepared for Income Tax Purpose

6. Dr. Varadraj Bapat Balance Sheet Balance 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.

7. Dr. Varadraj Bapat Balance Sheet (Format) LiabilitiesRs.AssetsRs. Owners Fund XX Fixed Assets XX Non Current Liabilities XX Non current Investments XX Current Liabilities XX Current Assets XX Every balance sheet shall give a true and fair view of state of affairs of the company as at the end of financial year.

8. Dr. Varadraj Bapat Particulars (format as per revised Schedule VI) As at 31st Mar 2011 31st Mar 2010 I.EQUITY AND LIABILITIES 1Shareholder's Funds (a) Share Capital - -

9. Dr. Varadraj Bapat (b) Reserves and Surplus - - (c) Money received against Share Warrants - - 2Share Application Money pending allotment - - 3Non-Current Liabilities (a) Long-Term Borrowings - -

10. Dr. Varadraj Bapat (b) Deferred Tax Liabilities (Net) - - (c) Other Long Term Liabilities - - (d) Long-Term Provisions - - 4Current Liabilities (a) Short-Term Borrowings - - (b) Trade Payables - -

11. Dr. Varadraj Bapat (c) Other Current Liabilities - - (d) Short-Term Provisions - - TOTAL - - II.ASSETS 1Non-Current Assets (a) Fixed Assets (i) Tangible Assets - - (ii) Intangible Assets - -

12. Dr. 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 - -

13. Dr. Varadraj Bapat 2Current 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 - -

14. Dr. Varadraj Bapat Elements of Balance Sheet   Assets   Liabilities   Owners Fund

15. Dr. Varadraj Bapat Assets Probable future economic benefit Probable future economic benefit What is owned or controlled What is owned or controlledExamples Cash Cash Land and Building Land and Building Investments Investments Machinery Machinery

16. Dr. 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

17. Dr. Varadraj Bapat Types of assets Fixed Assets Current Assets Investments Fixed Assets TangibleIntangible

18. Dr. Varadraj Bapat Tangible Land & Building Machinery Furniture In- tangible Goodwill Trade- Marks Patents

19. Dr. Varadraj Bapat Current Assets MonetaryNon-Monetary Debtors Bank RM Stock FG Stock

20. Dr. 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.

21. Dr. 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.

22. Dr. 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

23. Dr. 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

24. Dr. Varadraj Bapat Current Liabilities Interest accrued but not due on Loan Provision for Tax Bank Overdraft

25. Dr. Varadraj Bapat Provision: Provision means any amount retained by way of providing for any known liability of which amount can not be determined with substantial accuracy. Provision means any amount retained by way of providing for any known liability of which amount can not be determined with substantial accuracy. Provision refers to an amount set aside for meeting claims which are admissible but the amount whereof has not been confirmed. Provision refers to an amount set aside for meeting claims which are admissible but the amount whereof has not been confirmed.

26. Dr. Varadraj Bapat Examples Provision for payment of electricity charges (but bill is not yet received). Provision for payment of electricity charges (but bill is not yet received). Provision for taxes (till final amount is assessed by authorities.) Provision for taxes (till final amount is assessed by authorities.) Provision for bonus Provision for bonus Amount set aside for writing off bad debts. Amount set aside for writing off bad debts.

27. Dr. Varadraj Bapat Contingent Liability Contingent liability can be defined as a) 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

28. Dr. 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.

29. Dr. Varadraj Bapat Owners Fund Owners 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.

30. Dr. Varadraj Bapat Assets= Liabilities + Owners Fund Therefore, Owners Fund= Assets – Liabilities Owners Fund= Capital + Retained Earnings Balance Sheet Equation

31. Dr. 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)

32. Dr. Varadraj Bapat 3.(a) Cash purchase of equipment 3.(b) Collection of Debtors (a) +, - (+ Equipment, - Bank) (b) +, - (+ Bank, - Debtors) (a)-- (- Loan Payable, - Bank) (b)-- (- Creditors, - Bank) 4.(a) Company repays bank loan 4.(b) Payment of Creditors / supplier

33. Dr. 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)

34. Dr. 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

35. Dr. Varadraj Bapat A=L+O +, - (+ Equity Capital, - Reserves) 9. Company distributes stock dividend to stockholders (Bonus Shares)

36. Dr. Varadraj Bapat Vertical Format of Balance Sheet Sources of Funds Rs.Rs. Owners Fund XX Borrowing Funds Secured Loan XX Unsecured Loan XXXX Total Capital Employed XX

37. Dr. Varadraj Bapat Application of Fund Rs.Rs. Fixed Assets XX InvestmentsXX Working Capital Current Assets XX Current Liabilities (XX) Net Working Capital XX Total Assets Employed XX

38. Dr. Varadraj Bapat Every company has to prepare balance sheet in the form set out in Part I of Schedule VI of Companies Act.

39. Dr. Varadraj Bapat Exercise 1 1. 1.On January 2, owners invest Rs.15,000 in ShriRam Company to begin the business. 2. 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.

40. Dr. 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.

41. Dr. 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.

42. Dr. Varadraj Bapat 1. On January 2, owners invest Rs.15,000 in ShriRam Company to begin the business. ShriRam Company Balance Sheet January 2, Year 1 LiabilitiesAssets Capital15,000Bank15,000 Total15,000Total15,000

43. Dr. Varadraj Bapat 2. On January 3, ShriRam Company borrows Rs. 10,000 from DhanLakshmi Bank. ShriRam Company Balance Sheet January 3, Year 1 LiabilitiesAssets Paid-up capital 15,000Bank25,000 DhanLakshmi Bank Loan 10,000 Total25,000Total25,000

44. Dr. 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 Sheet January 5, Year 1 LiabilitiesAssets Paid-up capital 15,000Bank25,000 DhanLakshmi Bank Loan 10,000Inventory18,000 Accounts Payable/Creditors 18,000 Total43,000Total43,000

45. Dr. 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 LiabilitiesAssets Paid-up capital15,000Bank33,000 Reserves2,000Inventory12,000 DhanLakshmi Bank Loan 10,000 Creditors18,000 Total45,000Total45,000

46. Dr. Varadraj Bapat 5. On January 10, ShriRam Company pays for inventory purchased on January 5. ShriRam Company Balance Sheet January 10, Year 1 LiabilitiesAssets Paid-up capital15,000Bank15,000 Reserves2,000Inventory12,000 DhanLakshmi Bank Loan 10,000 CreditorsNil Total27,000Total27,000

47. Dr. 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 Sheet January 12, Year 1 LiabilitiesAssets Paid-up capital15,000Bank15,000 Reserves3,000Inventory7,000 DhanLakshmi Bank Loan 10,000Debtors6,000 Total28,000Total28,000

48. Dr. Varadraj Bapat 7. On January 31, ShriRam Company collects the debtors and puts in bank. ShriRam Company Balance Sheet January 31, Year 1 LiabilitiesAssets Paid-up capital15,000Bank21,000 Reserves3,000Inventory7,000 DhanLakshmi Bank Loan 10,000DebtorsNil Total28,000Total28,000

49. Dr. Varadraj Bapat Exercise 2: Show the effect of each transaction on the balance sheet of M/s. Krishna Book Stores Show the effect of each transaction on the balance sheet of M/s. Krishna Book Stores Shyam and Murlidhar set up a book stall M/s. Krishna Book Stores in their town. On 1 Jan 2010, Shyam opened new bank account in the name of their partnership by depositing Rs. 100000 cash and Murlidhar brought his own shop worth Rs. 200000 as capital. Shyam and Murlidhar set up a book stall M/s. Krishna Book Stores in their town. On 1 Jan 2010, Shyam opened new bank account in the name of their partnership by depositing Rs. 100000 cash and Murlidhar brought his own shop worth Rs. 200000 as capital.

50. Dr. Varadraj Bapat On 2 January 2010, store purchased book of Rs. 75000 and Stationary of Rs. 10000 on immediate payment from SK International. On 2 January 2010, store purchased book of Rs. 75000 and Stationary of Rs. 10000 on immediate payment from SK International. On 5 January 2010, Stores supplies books of Rs. 90000 (costing 60000) to Saraswati Highschool. School paid cheque Rs. 45000 immediately and reaming amount will be paid on 10 January 2010. On 5 January 2010, Stores supplies books of Rs. 90000 (costing 60000) to Saraswati Highschool. School paid cheque Rs. 45000 immediately and reaming amount will be paid on 10 January 2010.

51. Dr. Varadraj Bapat On 9 January 2010, books costing 47000 purchased on credit from SSK and Associates. On 9 January 2010, books costing 47000 purchased on credit from SSK and Associates. On 10 January 2010, Rs. 15000 received from Saraswati Highschool. On 10 January 2010, Rs. 15000 received from Saraswati Highschool. On 15 January 2010, cheque of Rs. 47000 paid to creditors. On 15 January 2010, cheque of Rs. 47000 paid to creditors.

52. Dr. Varadraj Bapat Balance Sheet as on 1 Jan 2010 LiabilitiesAmountAssetsAmount Capital Shyam100000Shop Premises 200000 Murlidhar200000Bank100000 300000

53. Dr. Varadraj Bapat Balance Sheet as on 2 Jan 2010 LiabilitiesAmountAssetsAmount Capital Shyam100000Shop Premises 200000 Murlidhar200000Bank15000 Inventory85000 300000

54. Dr. Varadraj Bapat Balance Sheet as on 5 Jan 2010 LiabilitiesAmountAssetsAmount Capital Shyam100000Shop Premises200000 Murlidhar200000Bank60000 Profit and Loss A/c 30000 Sundry Debtors45000 Inventory25000 330000

55. Dr. Varadraj Bapat Balance Sheet as on 9 Jan 2010 LiabilitiesAmountAssetsAmount Capital Shyam100000Shop Premises 200000 Murlidhar200000Bank60000 Profit and Loss A/c 30000Inventory72000 Sundry Creditors 47000Sundry Debtors 45000 377000

56. Dr. Varadraj Bapat Balance Sheet as on 10 Jan 2010 LiabilitiesAmountAssetsAmount Capital Shyam100000Shop Premises 200000 Murlidhar200000Bank75000 Profit and Loss A/c 30000Inventory72000 Sundry Creditors 47000Sundry Debtors 30000 377000

57. Dr. Varadraj Bapat Balance Sheet as on 15 Jan 2010 LiabilitiesAmountAssetsAmount Capital Shyam100000Shop Premises 200000 Murlidhar200000Bank28000 Profit and Loss A/c 30000Inventory72000 Sundry Debtors 30000 330000