Statement/Schedule of changes in working capital

Information available from balance sheets pertaining to two periods

In statutory formats and in many cases we come across two balance sheets clubbed into one single statement giving us a comparative view of the figures pertaining to the two dates. One the last day of the current accounting period and the other the last day of the previous accounting period i.e. the first day of the current accounting period.
Stretch/Expand this balance sheet
Balance Sheet of M/s ___ as on 31st March 2007
LIABILITIES ASSETS
Amount
(Previous)
ParticularsAmountAmount
(Current)
Amount
(Previous)
ParticularsAmountAmount
(Current)
12,00,000
7,00,000
20,00,000



15,00,000


18,00,000
EQUITY SHARE CAPITAL
PREFERENCE SHARE CAPITAL
RESERVES
a) P/L Appropriation a/c
b) Share Premium
e) General Reserve
LONG TERM LIABILITIES
(1) Loans from Banks
(2) Debentures
CURRENT LIABILITIES/PROVISIONS
(1) Sundry Creditors
(2) Bills Payable
(3) Bank Overdraft
(4) Outstanding Expenses
(7) Provision for Taxation
(8) Provision for Dividends



8,00,000
6,00,000
9,00,000

8,00,000
8,00,000

11,00,000
4,00,000
2,50,000
1,00,000
3,00,000
2,50,000
15,00,000
9,00,000
23,00,000



16,00,000


24,00,000
37,00,000





28,00,000








7,00,000
FIXED ASSETS
(1) Goodwill at Cost
(2) Land and Buildings
(3) Plant and Machinery
(4) Furniture and Fittings
(7) Investments
CURRENT ASSETS
A. LIQUID ASSETS
(1) Cash Balance
(2) Bills Receivable
(3) Sundry debtors
Less: Bad Debt Reserve
B. OTHER CURRENT ASSETS
(1) Stocks/Inventories
(2) Prepaid Expenses
ACCUMULATED LOSSES
1) Miscellaneous Expenses

8,00,000
13,00,000
14,00,000
6,00,000
4,00,000


78,000
8,25,000
12,25,000
(12,000)

12,00,000
2,84,000
45,00,000





36,00,000








6,00,000
72,00,000 Total 87,00,00072,00,000 Total 87,00,000

Use

In addition to providing all the information pertaining to an accounting period, the information from such a balance sheet enables us to compare the figures relating to the current period with the figures relating to the previous period.

Such a comparison enables us to analyse the changes in the current and non-current areas of the balance sheet over the period involved between the two balance sheet dates.

Deriving information relating to changes from two balance sheets

From two balance sheets, we can derive the data relating to the changes that have occurred in relation to the various balance sheet items over the period between the two dates.

The figures representing the changes in the balance sheet items are not straight away available but are to be derived.

Changes in the Current Area

Changes in the current area can be assessed by taking into consideration only the current natured accounts, both on the assets as well as the liabilities side i.e. current assets and current liabilities only.
Name Type Balance as on 31st March Change Nature
2007 2008
Cash Balance
Bills Receivable
Sundry Debtors
Stocks/Inventories
Prepaid Expenses
Sundry Creditors
Bills Payable
Bank Overdraft
Outstanding Expenses
Provision for Taxation
Provision for Dividends
Reserve for Bad Debts
Asset
Asset
Asset
Asset
Asset
Liability
Liability
Liability
Liability
Liability
Liability
Liability
56,000
5,75,000
9,15,000
9,48,000
3,24,000
7,40,000
2,20,000
2,81,000
1,23,000
2,38,000
1,98,000
18,000
78,000
8,25,000
12,25,000
12,00,000
2,84,000
11,00,000
4,00,000
2,50,000
1,00,000
3,00,000
2,50,000
12,000
22,000
2,50,000
3,10,000
2,52,000
40,000
3,60,000
1,80,000
31,000
23,000
62,000
52,000
6,000
Increase
Increase
Increase
Increase
Decrease
Increase
Increase
Decrease
Decrease
Increase
Increase
Decrease

Bad Debt reserve is current natured and is also a reserve

Reserve for Bad Debts account carries a credit balance. Being related to sundry debtors which are current natured, it is also treated as a current natured account.

Ledger accounts with a credit balance which appear in the balance sheet are shown on the liabilities side. As such, Reserve for Bad Debts account should also be shown on the liabilities side of the balance sheet and since it is current natured it is shown along with current liabilities.

Showing an item on the liabilities side of the balance sheet is the same as deducting it from an item on the assets side of the balance sheet. Thus to derive the information relating to the net realisable debtors, conventionally we deduct the reserve for bad debts from the figure of debtors on the assets side of the balance sheet.

Changes in the Non-Current Area

Changes in the fund area can be assessed by taking into consideration only the fund natured accounts, both on the assets as well as the liabilities side i.e. fund (non-current) assets and fund (non-current) liabilities only.
Name Type Balance as on 31st March Change Nature
2007 2008
Equity Share Capital
Preference Share Capital
Reserves
Long Term Liabilities
Fixed Assets
Accumulated Losses
Liability
Liability
Liability
Liability
Assets
Assets
12,00,000
7,00,000
20,00,000
15,00,000
37,00,000
7,00,000
15,00,000
9,00,000
23,00,000
16,00,000
45,00,000
6,00,000
3,00,000
2,00,000
3,00,000
1,00,000
8,00,000
1,00,000
Increase
Increase
Increase
Increase
Increase
Decrease

Note that the information that is derived only speaks of the magnitude of change and the direction of change. It does not give us an idea of the reasons for change.

Preparation of Schedule/Statement of changes in working capital

Schedule/Statement of changes in working capital

The information relating to the changes in current natured accounts between two periods of time presented in the form of a statement is what we call the schedule/statement of changes in working capital.

Preparing the Schedule/Statement of changes in working capital

Preparing the schedule/statement of changes in working capital requires us to present the information relating to the current area of the balance sheets pertaining to the two periods in the format given below and deriving and presenting the changes within them.
Schedule/Statement of Changes in Working Capital for the period from __ to __
Particulars/AccountBalance as on 31st MarchWorking Capital Change
20072008IncreaseDecrease
a) CURRENT ASSETS
1) Cash Balance
2) Bills Receivable
3) Sundry Debtors
4) Stocks/Inventories
5) Prepaid Expenses

56,000
5,75,000
9,15,000
9,48,000
3,24,000

78,000
8,25,000
12,25,000
12,00,000
2,84,000

22,000
2,50,000
3,10,000
2,52,000





40,000
TOTAL 28,18,000 36,12,000 8,34,000 40,000
b) CURRENT LIABILITIES
1) Sundry Creditors
2) Bills Payable
3) Bank Overdraft
4) Outstanding Expenses
5) Provision for Taxation
6) Provision for Dividends
7) Reserve for Bad Debts

7,40,000
2,20,000
2,81,000
1,23,000
2,38,000
1,98,000
18,000

11,00,000
4,00,000
2,50,000
1,00,000
3,00,000
2,50,000
12,000



31,000
23,000


6,000

3,60,000
1,80,000


62,000
52,000
TOTAL 18,18,000 24,12,000 60,000 6,72,000
Working Capital [(a) - (b)] 10,00,000 12,00,000
TOTAL 8,94,000 6,94,000
Net Change in Working Capital 2,00,000
  • Identify all the Current natured accounts on the assets as well as the liabilities sides of the two balance sheets in consideration.
  • Fill the statement with the data relating to those accounts, taking current assets as a group and current liabilities as another group.

    A balance sheet item may have data in only one of the balance sheets or in both. Each item should appear only once in the statement.

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