Most important topic forever useful::
Individual Elements of Balance Sheet
and Their Analysis:::
Liabilities
Current Liabilities
Term Liabilities
Debentures
Public Deposits
Capital
Reserves (including
Revaluation reserve)
Assets
Current Assets
ICDs/Loans
Fixed Assets
Capital Work-in-
Progress
Investments
Other Non-Current
Assets
Fictitious & Intangible
Assets
Current Liabilities
Current liabilities are the liabilities, including bank
borrowings, which are payable within next 12 months.
Thus, the following items are treated as current
liabilities:
Sundry creditors for raw material supplies and other
expenses
Advance payment received
Dividend payable
Instalments of term loans/deposits/DPGs/debentures
due within one year
Any other liability which will fall due in next 12 months
Term Liabilities
Term liabilities include loans taken from
banks or Financial Institutions for long-term
usage, which are repayable over a longer
time period. While instalment payable in next
12 months is classified as current liabilities,
the remaining instalment amount that is due
for payment after a year is classified as term
liabilities.
Debentures
The features of debentures are:
They are essentially in the nature of loans - much like
long-term loans granted by banks / financial
Institutions
Companies raise them from general public and
institutions, to be repaid within a specific time frame
Companies pay interest at a specified rate to
debenture holders from whom they raise debentures,
till they repay the principal sum
They come in the form of certificates issued by a
company under its common seal, which is also an
acknowledgement of the company's indebtedness to
the debenture holder
Public Deposits'
Care to be Exercised by Lending Banker
Should take care, particularly, in cases where
the company has defaulted in repaying such
public deposits
May treat all such public deposits which have
become due for repayment, and the portion of
small investments (regardless of the age of
such deposits), as current liability
Capital
Capital of a business enterprise is an item of
liability by virtue of:
The entity concept used in the preparation of
financial statements, which treats capital as a
liability.
The principles of accountancy, according to
which the enterprise owes this sum to the
owner(s) and therefore carries a liability to
pay back the capital fund with or without any
profit earned on it
Reserves
A Reserve
Consists of the portion of the earnings and
receipts.
Does not serve as a provision against a
known liability or any diminution in the value
of fixed assets (i.e. accumulated depreciation)
etc., in contradistinction to Reserves which is
part of net worth of the company
Surplus
A Surplus
Represents credit balance in the profit and
loss account, after the dividend and reserves
etc. are provided for, appropriated or
transferred.
Assets - Current Assets
Current assets are those assets, which: Are expected
to be converted into cash e.g. raw material, stock-in-
process, finished goods etc. in next 12 months, and
Pertain to the company's main activity
However, in respect of receivables, the treatment is
different. Receivables are treated:
As current assets only for a period of 6 months
As non-current assets, if they are more than 6
months old
Fixed Assets
Fixed assets are the assets:A credit analyst
should:
Held for use in production or providing goods,
services etc. over a long period of time
Not meant for sale in the normal course of
business
That are producers of merchandise and not
merchandise themselves
Assets - Investments
Investments made by a company, appearing in the
balance sheet of a company:
Is a very important item, appearing in the assets side,
from the point of view of a credit analyst
Normally indicates deployment of funds in securities
or assets, which may not be directly related to the
main activities of the companyMay refer to the
surplus funds of enterprises, which they decided to
invest in short-term securities for earning profit/short-
term gainsMay also refer to, funds invested in the
shares/securities of another enterprise in which the
investor company is interested on a long-term basis.
E.g.: Investment made in subsidiaries.
Assets - Other Non-Current Assets
Other non-current assets include:
Advances to suppliers of capital goods (plant,
machinery etc.)
Deferred receivables (maturity after 1 year)
Receivables more than 6 months old
Non-consumable stores and spares
Dues from directors et
Assets - Fictitious & Intangible
Assets
Fictitious Assets
Companies incur certain expenses, which are
not charged to the profit & loss account either
fully or in part during the same year in which
they are incurred. These expenses figure on
the asset side of a balance sheet, as though
they are real assets. Such assets are known
as fictitious assets.
Assets - Fictitious & Intangible
Assets
Intangible Assets
Assets that may not represent any real or
tangible asset are called as intangible
assets.Intangible assets represent monetary
values of different rights enjoyed by the
business enterprise, and are therefore
considered as assets. This category of items
include goodwill, patents, copyrights,
trademark rights etc. that appear on the asset
side of a balance sheet.
