Financial Accounting For Managers Author: Sanjay Dhamija Financial Accounting For Managers Author: Sanjay Dhamija

Balance Sheet
Financial Accounting for Managers
Author: Sanjay Dhamija
Copyright 2012 Dorling Kindersley (India) Pvt. Ltd.
Chapter 5
GAAP Revisited
Separate Entity
Money Measurement
Going Concern
Historical Cost
Conservatism
Dual Aspect
Accounts must be maintained on an accrual basis and according

to double entry bookkeeping system (Section 209).
The balance sheet, and the profit and loss account must be
prepared for every financial year.
The financial statements must be laid before the Annual General
Meeting of the shareholders for approval within six months of
the close of the year (Section 210).
The balance sheet of a company shall be either in horizontal
form or vertical form.
The balance sheet must show figures for the current year and
comparative figures for the previous year.
Information required under any head may be given in separate
`Schedule.
Schedule VI Part I
Note
No
Particulars
I. EQUITY AND LIABILITIES

(1) Shareholder's Funds
(a) Share Capital
(b) Reserves and Surplus
(c) Money received against share warrants
(2) Share application money pending allotment
(3) Non-Current Liabilities
(a) Long-term borrowings
(b) Deferred tax liabilities (Net)
(c) Other Long term liabilities
(d) Long term provisions
(4) Current Liabilities
(a) Short-term borrowings
(b) Trade payables
(c) Other current liabilities
(d) Short-term provisions
Total
Figures as at
the end of
current
reporting
period
Figures as at
the end of
previous
reporting period
Figures as at
Figures as at the
Note
the end of
end of previous
No
current
reporting period
reporting period
Particulars
II. Assets
(1) Non-current assets
(a) Fixed assets
(i) Tangible assets
(ii) Intangible assets
(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
(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
Equity and Liabilities
Authorized, issued, subscribed, and called up for each

class of shares.
Calls unpaid to be deducted from the called up capital to
arrive at paid up capital.
Add: Forfeited shares (amount paid up).
Terms of redemption/conversion of redeemable preference
shares to be stated with date redemption/conversion.
Shares issued for consideration other than cash to be
identified.
Shares allotted by way of bonus shares to be shown.
Sources from which bonus shares have been issued to be
specified.
Calls unpaid by the directors to be separately indicated.
Share Capital
Preference capital
Preference for payment of dividend at a fixed rate and
repayment of capital.
Equity capital
Perpetual
Last preference for dividend and repayment of capital.
Type of Capital
Authorized share capital: The maximum amount that the

company may raise by issuing capital is mentioned in the
Memorandum of Association.
Issued share capital: Part of authorized share capital that is
offered by the company for subscription.
Subscribed share capital: Part of the issued share capital
that is subscribed by the shareholders.
Called up share capital: Part of the subscribed share capital
that has been called up by the Company.
Calls in arrear: Call amount not paid by the shareholders.
Paid up capital: Called up share capital minus calls in arrear.
Forfeited shares: Amount paid up on the shares forfeited due
to non payment of call money.
Type of Capital
Capital reserves
Capital redemption reserve
Securities premium reserve
Debenture redemption reserve
Revaluation reserve
Share options outstanding account
Other reserves
Specify the nature and purpose of each reserve and the
amount in respect thereof
Surplus i.e. balance in statement of profit and loss
Reserve and Surplus
Addition and deductions since the last balance sheet under

each specified head.
`Fund in relation to any `reserve should be used only
where such reserve is specifically represented by
earmarked investments.
Debit balance of statement of profit and loss shall be
shown as a negative figure.
The balance of reserves and surplus, after adjusting
negative balance of surplus, if any, shall be shown under
the head reserves and surplus even if the resulting figure
is in the negative.
Reserve and Surplus
Liabilities
Bonds/debentures
Term loans
From banks
From other parties
Deferred payment liabilities
Deposits
Loans and advances from related parties
Long term maturities of finance lease obligations
Other loans and advances
Borrowings shall further be sub-classified as secured and
unsecured. Nature of security to be specified separately in
each case.
Long Term Borrowings
Relevant Accounting Standard AS 22
Due to difference between taxable income (as per Income

Tax Act) and accounting profit
Permanent difference
Dont reverse subsequently
Expenses disallowed, exempt income
Timing difference
Reversed in the subsequent period
Expenses allowed on payment basis, depreciation
Deferred Tax Liability/Assets
Cause
Effect
Accounting
Accounting income
> Taxable income
Tax on accounting
income > Tax payable
as per Income Tax Act
Create deferred
tax liability
Accounting income
< Taxable income
Tax on accounting
income < Tax payable
as per Income Tax Act
Create deferred
tax asset
Deferred Tax Liability/Assets
Trade payables
Others
Other Long Term Liabilities
Provision for employee benefits.
Others (specify nature)
Long Term Provisions
Expected to be settled in the companys normal operating

cycle.
Held primarily for the purpose of being traded.
Due to be settled within twelve months after the reporting

date; or
The company does not have an unconditional right to defer

settlement of the liability for at least twelve months after the
reporting date.
Current Liabilities
Loans repayable on demand

from banks
from other parties
Loans and advances from related parties
Deposits
Other loans and advances
Further classified as secured and unsecured, mentioning

the nature of security
Short Term Borrowings
Current maturities of long-term debt
Current maturities of finance lease obligations
Interest accrued but not due on borrowings
Interest accrued and due on borrowing
Income received in advance
Unpaid dividends
Application money received for allotment of securities, and

due for refund and interest accrued thereon
Unpaid matured deposits and interest accrued thereon
Unpaid matured debentures and interest accrued thereon
Other payables
Other Current Liabilities
Provision for employee benefits
Others
Short Term Provisions
Assets
Classification of Assets
Show at cost of acquisition less depreciation

The cost comprise purchase price and any attributable cost of
bringing the asset to its working condition for its intended use.
(AS-10)
Capitalize borrowing cost up-to the point the asset is ready for
its intended use (AS-16)
Import duties, taxes, delivery and handling costs, site
preparations, installation cost, professional fees, start up and
commissioning, test runs
Subsequent expenditures to be added to its book value only if
they increase the future benefits from the existing asset
Improvement
Repairs
Tangible Assets
Show, to the extent possible, under the following headings

Land.
Buildings
Plant and equipment
Furniture and fixtures
Vehicles
Office equipment
Others (specify nature).
Tangible Assets
Under each head show the original cost, addition and

deduction during the year and total depreciation written off
up to the end of the year
Original cost Gross block
Less accumulated depreciation Net block
Tangible Assets
Identifiable, non-monetary assets without physical substance

Acquired intangible assets are recorded at their cost of
acquisition
Self-generated goodwill/brand value is not recognized
Research costinventing or creating a new product, method
or systemis not capitalized
Development costconverting the result of research into a
marketable productcan be capitalized
Expenses that provide future economic benefits but no
intangible assets is createdtreat as expense when incurred
e.g. start up costs, launching new product, training etc.
Intangible Assets
Goodwill
Brands /trademarks
Computer software
Mastheads and publishing titles
Mining rights
Copyrights, and patents and other intellectual property
rights, services and operating rights
Recipes, formulae, models, designs and prototypes
Licenses and franchise
Intangible Assets
Relevant accounting standardAS 13

Distinguish between current investments and long term
investments
Current investments: Intended to be held for not more
than one year
Cost of investment includes all the related costs
Valuation (Carrying amount)
Current investmentat lower of cost or fair value
preferably on individual basis
Long term investmentsat cost subject to any nontemporary diminution
Profit or loss on disposal of investment to be shown in profit
and loss account
Significant restriction on right of ownership, remittance of
income or proceeds of disposal to be disclosed
Investments
Trade investments and other investments

Investment property
Investments in equity instruments
Investments in preference shares
Investments in government or trust securities
Investments in debentures or bonds
Investments in mutual funds
Investments in partnership firms
Other non-current investments (specify nature)
Non-current Investments
Investments
Equity instruments
Preference shares
Government or trust securities
Debentures or bonds
Mutual funds
Partnership firms
Other investments
Current Investments
Aggregate amount of quoted investments and their market

value should be shown
Aggregate amount of unquoted investments to be shown
Aggregate provision for diminution in value of investments
Non-current Investments
Long-term loans and advances shall be classified as:

Capital advances
Security deposits
Loans and advances to related parties (giving details
thereof)
Other loans and advances (specify nature).
Sub-classified as:
Secured, considered good
Unsecured, considered good
Doubtful.
Long Term Loans and Advances
Long term trade receivables (including trade receivables on

deferred credit terms)
Others (specify nature)
Long term trade receivables, shall be sub-classified as:

Doubtful.
Other Non-current Assets
Expected to be realized in, or is intended for sale or

consumption in, the companys normal operating cycle.
Held primarily for the purpose of being traded.
Expected to be realized within twelve months after the
reporting date; or
Cash or cash equivalent unless it is restricted from being
exchanged or used to settle a liability for at least twelve
months after the reporting date.
Current Assets
Raw materials
Work-in-progress
Finished goods
Stock-in-trade (in respect of goods acquired for trading)
Stores and spares
Loose tools
Inventories
Aggregate amount of trade receivables outstanding for a

period exceeding six months from the date they are due for
payment
Trade receivables
Unsecured considered good
Doubtful.
Allowance for bad and doubtful debts
Trade Receivables
Cash and cash equivalents shall be classified as:

Balances with banks
Cheques, drafts on hand
Cash on hand
Earmarked balances with banks (for example, for unpaid
dividend) shall be separately stated.
Balances with banks to the extent held as margin money or
security against
the
borrowings,
guarantees,
other
commitments
Repatriation restrictions, if any, in respect of cash and bank
balances
Bank deposits with more than 12 months maturity.
Cash and Cash Equivalents
To be classified as:
Loans and advances to related parties (giving details
thereof)
Further to be sub-classified as:

Doubtful
Allowance for bad and doubtful loans and advances.
Short Term Loans and Advances
Off Balance Sheet Liabilities
Contingency
A condition or situation, the ultimate outcome of which,
gain or loss, will be known or determined only on the
occurrence, or non-occurrence, of one or more uncertain
future events.
Restricted to conditions or situations at the balance sheet
date
The estimates of the outcome and of the financial effect of
contingencies are determined by the judgment of the
management of the enterprise.
Contingent Liabilities
Claims against the company not acknowledged as debt
Guarantees
Other money for which the company is contingently liable
Commitments shall be classified as:

Estimated amount of contracts remaining to be executed
on capital account, and not provided for
Uncalled liability on shares and other investments partly
paid
Other commitments
Contingent Liabilities

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Balance Sheet

Financial Accounting for Managers

Author: Sanjay Dhamija

Copyright 2012 Dorling Kindersley (India) Pvt. Ltd.

Copyright 2012 Dorling Kindersley (India) Pvt. Ltd.

Financial Accounting for Managers

Author: Sanjay Dhamija

Accounts must be maintained on an accrual basis and according

Financial Accounting for Managers

Author: Sanjay Dhamija

Copyright 2012 Dorling Kindersley (India) Pvt. Ltd.

I. EQUITY AND LIABILITIES

Equity and Liabilities

Authorized, issued, subscribed, and called up for each

Financial Accounting for Managers

Author: Sanjay Dhamija

Copyright 2012 Dorling Kindersley (India) Pvt. Ltd.

Financial Accounting for Managers

Author: Sanjay Dhamija

Copyright 2012 Dorling Kindersley (India) Pvt. Ltd.

Authorized share capital: The maximum amount that the

Author: Sanjay Dhamija

Copyright 2012 Dorling Kindersley (India) Pvt. Ltd.

Financial Accounting for Managers

Author: Sanjay Dhamija

Copyright 2012 Dorling Kindersley (India) Pvt. Ltd.

Reserve and Surplus

Addition and deductions since the last balance sheet under

Financial Accounting for Managers

Author: Sanjay Dhamija

Copyright 2012 Dorling Kindersley (India) Pvt. Ltd.

Reserve and Surplus

Copyright 2012 Dorling Kindersley (India) Pvt. Ltd.

Financial Accounting for Managers

Author: Sanjay Dhamija

Financial Accounting for Managers

Author: Sanjay Dhamija

Copyright 2012 Dorling Kindersley (India) Pvt. Ltd.

Long Term Borrowings

Relevant Accounting Standard AS 22

Due to difference between taxable income (as per Income

Financial Accounting for Managers

Author: Sanjay Dhamija

Copyright 2012 Dorling Kindersley (India) Pvt. Ltd.

Deferred Tax Liability/Assets

Financial Accounting for Managers

Author: Sanjay Dhamija

Copyright 2012 Dorling Kindersley (India) Pvt. Ltd.

Deferred Tax Liability/Assets

Financial Accounting for Managers

Copyright 2012 Dorling Kindersley (India) Pvt. Ltd.

Other Long Term Liabilities

Author: Sanjay Dhamija

Provision for employee benefits.

Others (specify nature)

Financial Accounting for Managers

Author: Sanjay Dhamija

Copyright 2012 Dorling Kindersley (India) Pvt. Ltd.

Long Term Provisions

Expected to be settled in the companys normal operating

Held primarily for the purpose of being traded.

Due to be settled within twelve months after the reporting

The company does not have an unconditional right to defer