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Balance Sheet - Marshalling of Assets/Liabilities - Horizontal/Vertical Forms : information derived
Balance Sheet - the information it provides
A Balance sheet is a position statement and it gives the information relating to the assets and liabilities
of an organisation.
A typical balance sheet would look something like this.
Balance Sheet of M/s Free Flow Fluids as on 30th June 2007
Liabilities Amount Assets Amount
Eq. Share Capital
Pr. Share Capital
Reserves and Surplus
Capital Reserve
General Reserve
Share Premium
Retained Earnings (P/L Appr)
Other Reserves
Long Term Loans
Fixed Deposits Collected
Debentures
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Provisions for Taxation
Provisions for Dividends
Outstanding Expenses
Pre received Incomes
Unclaimed Dividends
Sundry Creditors
Bills Payable
Bank Overdraft 35,00,000
12,00,000
6,00,000
12,00,000
3,50,000
43,50,000
4,00,000
54,00,000
16,00,000
24,00,000
3,00,000
4,00,000
5,00,000
2,00,000
20,000
13,00,000
12,00,000
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5,00,000 Goodwill
Land
Buildings
Plant and Machinery
Furniture and Fittings
Motor Vehicles
Patents, Trade Marks, Copyrights
Investments
Stock of Raw Material
Work in Progress
Finished Goods Stock
Prepaid Expenses
Incomes Receivable
Sundry Debtors
Cash
Bank Balance
Loans and Advances
Bills Receivable
Deferred Revenue Expenditure
Miscellaneous Expenses
Discounts to be written off
Accumulated Loss
(P/L Appr a/c debit balance) 8,00,000
35,00,000
27,00,000
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15,00,000
25,00,000
35,00,000
18,00,000
24,00,000
2,50,000
2,40,000
3,00,000
4,00,000
3,00,000
26,00,000
1,16,000
6,00,000
15,00,000
54,000
1,20,000
2,40,000
2,54,20,000 2,54,20,000
What does it contain
In accounting point of view, the Balance Sheet is a statement of Real, Personal and Special Nominal
account balances after closing the nominal accounts. These are balances that are carried forward to the
subsequent accounting period.
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Special Nominal Accounts
Special Nominal accounts are nominal accounts whose balances are carried over from one accounting
period to another. This is a term we use for understanding purposes only.
The information it provides
The information that we can deduce from a balance sheet made out as above is limited. It gives us an
idea of the various assets and liabilities relating to the organisation as on the date of the balance sheet.
Marshalling of Assets and Liabilities - for greater information
To give a better idea/understanding/information, the Balance Sheet items are arranged in a specific
order.
Marshal
Meaning = To arrange in a logical order; Make ready for action or use
Synonyms = Assemble, Line up, Organise, Position, Collect, Gather together
Marshalling of Assets and Liabilities
The process of arranging the balance sheet items (assets and liabilities) in a specific order is what we
call "Marshalling of Assets and Liabilities". There are two orders followed in Marshalling of Assets and
Liabilities (a) Order of Liquidity and (b) Order of Permanence
Order of Liquidity
The most liquid asset (cash) is placed first and the least liquid asset (goodwill) is placed last. In case of
liabilities the liability that has to be paid out at the earliest (bank overdraft) is placed first and the
liability that has got the highest life time (capital) is placed last.
Balance Sheet of M/s Free Flow Fluids as on 30th June 2007
Liabilities Amount Assets Amount
Bank Overdraft
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Bills Payable
Sundry Creditors
...
...
...
...
Pr. Share Capital
Eq. Share Capital 5,00,000
12,00,000
13,00,000
...
...
...
...
12,00,000
35,00,000 Cash
Bank Balance
Bills Receivable
Sundry Debtors
...
...
Buildings
Land
Goodwill 1,160,000
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15,00,000
26,00,000
...
...
27,00,000
35,00,000
8,00,000
2,54,20,000 2,54,20,000
Assets - Liquidity
Liquidity is the characteristic of an asset to get converted to cash. The faster an asset can be converted
into cash, the more liquid it is.
Of all the assets we generally come across in balance sheets, We can consider
Cash to be the highest liquid asset, since we need no time to convert cash into cash.
Goodwill to be the least liquid asset, since it is attached to the orgnisation and can be realised only when
the organisation is dissolved
Liabilities - Payout
Of all the liabilities we generally come across in the Balance Sheet, we consider
Bank Overdraft to be the liability that has to be paid at the earliest, since it gets adjustment with every
bank transaction carried on.
[Bank Overdraft indicates overdrawl in the regular bank account used by the organisation. Anypayments received by the organisation when put in bank and any payments made by the organisation
by cheque and collected by the payee will alter the balance due.]
Capital to be the liability that has the highest life span, since it is paid out only after every other liability
is paid out and paying out capital amounts to dissolving the organisation.
Order of Permanence
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This order is the reverse of the Order of Liquidity.
Balance Sheet of M/s Free Flow Fluids as on 30th June 2007
Liabilities Amount Assets Amount
Eq. Share Capital
Pr. Share Capital
...
...
...
...
Sundry Creditors
Bills Payable
Bank Overdraft 35,00,000
12,00,000
...
...
...
...
13,00,000
12,00,000
5,00,000 Goodwill
Land
Buildings
...
...
Sundry Debtors
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Bills Receivable
Bank Balance
Cash 8,00,000
35,00,000
27,00,000
...
...
26,00,000
15,00,000
1,16,000
2,54,20,000 2,54,20,000
Assets
The asset with the highest permanence (least liquid asset), Goodwill is placed first and the least
permanence (highest liquid asset), Cash is placed last.
Liabilities
In case of liabilities the liability that has the highest life time (capital) is placed first and the liability that
has to be paid out at the earliest (bank overdraft) is placed last.
Arranging Assets and Liabilities as per Statutory Requirements
Many a timesorganisations are required to present the financial statements in specified forms to meet
statutory obligations. Presenting the Profit/Loss a/c and Balance Sheet in specified formats to the
Registrar of Companies, to meet the obligations under the Companies Act; to the Income Tax Authorities
to meet the obligations under the Income Tax Act are some such examples.
Normally we see the order of permanence being followed in these statements.
Balance Sheet
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The Indian Companies Act, 1956, requires the companies registered under it to submit their Balance
Sheet in a Horizontal Format or in a Vertical Format as given in Schedule VI Part I of the Act.
Does Marshalling provide additional information?
Marshalling of assets and liabilities provides a systematic flow of information based a key characteristic,
liquidity. Placing the assets and liabilities in such an order would enable the organisation to have a clear
idea of the assets with respect to their life span.
Liquidity being one of the important factors for decision making in relation to assets and liabilities, such
an arrangement would be useful without doubt.
However, this information in itself would not be sufficient for all types of analysis that can be made
based on the data that the balance sheet provides.
There are statutory formats for presenting information, which may provide additional information.
Statutory Horizontal Form of Balance Sheet
Indian Companies Act, 1956. Schedule VI PART I
Horizontal Form of Balance Sheet
Balance Sheet of M/s Free Flow Fluids on 30th June 2007
Liabilities Amount
(Previous) Amount
(Current) Assets Amount
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(Previous) Amount
(Current)
SHARE CAPITAL: [Note L: (a)]
Authorised:
x EQ. shares of Rs._ each
y Pr. shares of Rs._ each
Issued: [Note L: (b)]
a EQ. shares of Rs._ each
b Pr. shares of Rs._ each
Subscribed Capital: [Note L: (c), G(c)]
EQ - p shares of Rs._ each, Rs.__ called up
EQ - q shares of Rs._ each, Rs.__ called up
Pr - m shares of Rs._ each, Rs.__ called up
Of these :
Shares allotted as fully paid-up
A) Pursuant to a contract without payments
being received in cash :
EQ - k shares of Rs._ each
Pr - h shares of Rs._ each
B) By way of bonus shares : [Note L: (d)]
EQ - r shares of Rs._ each
Less : Calls in Arrears
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By Managing Agents/Secretaries/Treasurers
[Note L: (e)]
By Directors
By Others
Add : Forfeited Shares [Note L: (d)]
(amount originally paid up.)
RESERVES and SURPLUS [Note L: (g), (h)]
(1) Capital Reserves.
(2) Capital Redemption Reserve.
(3) Share Premium Account [Note G: (cc)]
(4) Other reserves
(specifying the nature of each Reserve
and the amount in respect thereof.)
Less : Debit balance in P/L a/c. [Note G: (h)]
(5) Surplus bal in P/L a/c
(after providing for Dividend, bonus, reserves etc.)
(6) Proposed additions to reserves.
(7) Sinking Funds
SECURED LOANS [Note L: (i), (j), (k), (l)]
(1) Debentures [Note L: (l)]
(2) Loans and advances from banks.
(3) Loans and advances from subsidiaries.
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(4) Other loans and advances.
UNSECURED LOANS
(1) Fixed deposits.
(2) Loans and advances from subsidiaries.
[Note L: (m), (n), (o)]
(3) Short-term loans and advances:
[Note L: (m), (n), (o); G: (d)]
(a) From Banks.
(b) From others
(4) Other loans and advances:
(a) From Banks.
(b) From others.
CURRENT LIABILITIES AND PROVISIONS :
A. CURRENT LIABILITIES : [Note L: (p), (), () ]
(1) Acceptances.
(2) Sundry creditors.
Total outstanding dues
i) of small scale industrial undertaking(s); and
ii) of other creditors
(3) Subsidiary companies.
(4) Advance payments and unexpired discounts
for the portion for which value has still to
be given e.g., in the case of the following
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classes of companies :- Newspaper, Fire
Insurance, theatres, clubs, banking,
steamship companies, etc.
(5) Unclaimed dividends.
(6) Other liabilities (if any)
(7) Interest accrued but not due on loans.
B. PROVISIONS
(8) Provision for taxation.
(9) Proposed dividends.
(10) For contingencies.
(11) For provident fund scheme.
(12) For insurance, pension
and similar staff benefit schemes.
(13) Other provisions. FIXED ASSETS [Note A: (a), (b), (c), (d) ]
(a) Goodwill
(b) Land
(c) Buildings
(d) Leaseholds
(e) Railway Sidings
(f) Plant and Machinery
(g) Furniture and Fittings
(h) Development of Property
(i) Patents, Trade Marks and Designs
(j) Livestock
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(k) Vehicles
INVESTMENTS : [Note A: (e), (f), (g)]
(a) In Government or Trust Securities
(b) In Shares [Note A: (h)]
(c) In Debentures [Note A: (h)]
(d) In Bonds [Note A: (h)]
(e) In Immovable properties
(f) In Capital of partnership firms
(g) Balance of unutilised monies raised by issue
CURRENT ASSETS, LOANS AND ADVANCES:
(A) CURRENT ASSETS
(1) Interest accrued on Investments
(2) Stores and spare parts [Note A: (i)]
(3) Loose tools
(4) Stock-in-trade [Note A: (i)]
(5) Works-in-progress
(6) Sundry debtors [Note A: (k)]
(a) Debts outstanding for over six months.
(b) Other debts.
Less: Provision
(7) Cash and Bank Balances
(A) Cash balance on hand
(B) Bank balances - [Note A: (l), (m)]
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(a) with Scheduled banks
(b) with others.
(B) LOANS AND ADVANCES [Note A: (k)]
(8) Advances and Loans
(i) To subsidiaries.
(ii) To partnership firms
(in which the company or any of its
subsidiaries is a partner.)
(9) Bills of Exchange.
(10) Advances recoverable
(in cash or in kind or for value to be received
Eg : Rates, Taxes, Insurance, etc.)
(11) Balances with customs, port trust, etc.
(where payable on demand)
MISCLLANEOUS EXPENDITURE :
(to the extent not written off or adjusted):
(1) Preliminary expenses.
(2) Expenses including commission or brokerage
on underwriting or subscription of shares or
debentures.
(3) Discount allowed on the issue of shares
or debentures.
(4) Interest paid out of capital (with rate of interest)
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during construction
(5) Development expenditure not adjusted.
(6) Other items
PROFIT AND LOSS ACCOUNT [Note A: (n)]
Footnotes
A foot note to the balance-sheet may be added to show separately :-
(1) Claims against the company not acknowledged as debts.
(2) Uncalled liability on shares partly paid.
(3) Arrears of fixed cumulative dividends.
The period for which the dividends are in arrear or if there is more than one class of shares, the
dividends on each such class are in arrear, shall be stated.
(4) Estimated amount of contracts remaining to be executed on capital account and not provided
for.
The amount shall be stated before deduction of income-tax, except that in the case of tax-free dividends
the amount shall be shown free of income-tax and the fact that it is so shown shall be stated.
(5) Other money for which the company is contingently liable.
The amount of any guarantees given by the company on behalf of directors or other officers of the
company shall be stated and where practicable, the general nature and amount of each such contingent
liability, if material, shall also be specified.
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L Instructions in accordance with which liabilities should be made out Show/Hide
A Instructions in accordance with which assets should be made out Show/Hide
G General instructions for preparation of balance sheet Show/Hide
Statutory Vertical Form of Balance Sheet
Indian Companies Act, 1956. Schedule VI PART I
Vertical Form of Balance Sheet
Balance Sheet of M/s Free Flow Fluids as on 30th June 2007
Particulars Schedule
No. Figures as at the end of
Current
Financial
year Previous
Financial
year
I. SOURCE OF FUNDS
(1) Shareholders' funds :
(a) Capital
(b) Reserves and surplus
(2) Loan funds
(a) Secured loans
(b) Unsecured loans
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TOTAL
II. APPLICATION OF FUNDS
(1) Fixed assets :
(a) Gross; block
(b) Less : Depreciation
(c) Net block
(d) Capital work-in-progress
(2) Investments
(3) Current assets, loans and advances :
(a) Inventories
(b) Sundry debtors
(c) Cash and bank balances
(d) Other current assets
(e) Loans and advances
Less : Current liabilities and provisions:
(a) Liabilities
(b) Provisions
(4)
(a) Miscellaneous expenditure to the extent
not written off or adjusted
(b) Profit and loss account
TOTAL
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Notes1. Details under each of the above items shall be given in separate Schedules. The Schedules shall
incorporate all the information required to be given under A-Horizontal Form read with notes containing
general instructions for preparation of balance sheet.
2. The Schedules, referred to above, accounting policies and explanatory notes that may be
attached shall form an integral part of the balance sheet.
3. The figures in the balance sheet may be rounded off to the nearest '000' or '00' as may be
convenient or may be expressed in terms of decimals of thousands.
4. A footnote to the balance sheet may be added to show separately contingent liabilities.]
Are the Statutory Formats useful?
All the benefits derived by marshalling of assets and liabilities are derived by following the statutory
format.
The presentation of the information relating to the previous period and the current period side by side
would also enable the organisation to have a comparative overview of each of the items within the
Balance Sheet.
information not obtainable
Though a better understanding (or derivation of information) is possible by marshalling of assets and
liabilities or by following the statutory formats, there is a lot of other information that is needed by theorganisation that is not obtained ready hand from the Balance Sheets.
Total value of the fixed assets, funds relating/belonging to the ownership, long term loans etc.,
employed in the business are some of the examples of such information. Such information to an extent
is obtainable from the Vertical Format of balance Sheet.
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Solution !!
To enable derivation of such additional information, the information in the balance sheet is redrawn
into a statement which is termed "Balance Sheet in a Form Suitable for Financial Analysis".
We would see if that statement provides all the information that is derived in Funds Flow analysis.
Author Credit : The Edifier ... Continued Page 2
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