Balance Sheet - Marshalling of Assets/Liabilities - Horizontal/Vertical Forms : information derived

Balance Sheet - the information it provides

A typical balance sheet would look something like this.

Balance Sheet of M/s Free Flow Fluids as on 30th June 2007
LiabilitiesAmountAssetsAmount
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
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
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
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

2,54,20,0002,54,20,000

A position statement

A Balance sheet is a statement that is prepared at a particular moment. It contains the information relating to the assets and liabilities of an organisation as at that moment. It is called a position statement as it indicates the position of the organisation as that moment.

Statement of Real, Personal, Nominal account balances

In accounting terms, a balance sheet is a statement of balances in ledger accounts after closing the nominal accounts i.e. a statement of Real, Personal and Special Nominal account balances.

Special Nominal Accounts

Nominal accounts whose balances are carried over from one accounting period to another.

Statement of balances carried forward

If the balance sheet is the one drawn on the last day of the accounting period, the balances represent the ledger account balances to be carried forward to the subsequent accounting period.

Deriving additional information from the Balance Sheet

Apart from the information relating to the organisation's assets and liabilities, a lot of other information can be derived from the balance sheet. For deriving some kinds of information, arranging the assets and liabilities in a specific order is all that is needed to be done. For deriving some other kinds of information the balance sheet may have to be redrawn by grouping and rearranging the information contained in it.

Some of the methods used to derive the additional information are

Setting off related ledger account balances

Balance sheet contains some derived information that is obtained by clubbing or setting off certain related ledger account balances.

Net Value of Assets

Asset account has a debit balance which indicates the net value [cost - depreciation to date] of the asset.

Ledgers Show

Where depreciation reserve account is being maintained, the asset account balance indicates the cost value of the asset and depreciation reserve account balance indicates the depreciation charged on the asset till date. In such cases, the net value of the asset is obtained by setting off depreciation reserve account balance against the asset account balance.

Ledgers Show

Such set off is shown in the balance sheet on the assets side. Depreciation Reserve account balance is deducted from Asset account balance and the net value is derived.
Balance Sheet of M/s ___ as on 31st December __
LiabilitiesAmountAssetsAmount

...
...
... 

...
...
...

...
Plant and Machinery   5,00,000
  Less: Depr Reserve 2,10,000
...

...

2,90,000
...  
  

Net Debtors

Debtors account has a debit balance. This balance indicates the amounts due from the debtors as on that date. Bad Debts Reserve account has a credit balance. This balance indicates reserve being maintained to confront losses on account of bad debts that may have to be borne in the subsequent accounting period.

Based on the nature of their balances, Debtors account which has a debit balance appears on the assets side of the balance sheet and bad debt reserve account which has a credit balance appears on the liabilities side of the balance sheet.

Balance Sheet of M/s ___ as on 31st December __
LiabilitiesAmountAssetsAmount

...
Bab Debt Reserve
... 

...
32,000
...

...
Debtors
...

...
14,16,000
...  
  

The net value of debtors realisable in the subsequent accounting period, can be obtained by setting off the balance due from debtors with the balance in the Bad debt reserve account.

Such set off is shown in the balance sheet on the assets side. Bad Debt Reserve account balance is deducted from Debtors account balance and the net value is derived.

Balance Sheet of M/s ___ as on 31st December __
LiabilitiesAmountAssetsAmount

...
...
... 

...
...
...

...
Debtors   14,16,000
  Less: Bad Debt Reserve 32,000
...

...

13,84,000
...  
  

Marshalling of Assets and Liabilities

The assets and liabilities are arranged in an order based on a key characteristic, liquidity, which is one of the most important characteristic aiding decision making in relation to assets and liabilities.

Remaking in Statutory Formats

Remaking in statutory formats requires rearrangement, grouing and ordering of the information within the balance sheet in a manner required by the statute. This is done to meet the statutory requirements with respect to presenting accounting information,

The statutory formats for presenting balance sheet information under the Indian Companies Act, 1956 are

  • Horizontal Form of Balance Sheet (Schedule VI PART I)
  • Vertical Form of Balance Sheet (Schedule VI PART I)

Both these formats involve grouping and ordering the balance sheet information.

Remaking in a form suitable for financial analysis

In remaking the balance sheet in a form suitable for financial analysis, the assets and liabilities are re-arranged, grouped and presented in a vertical form, presenting additional information like the value of cost of goods sold, operating expenses, current assets etc. This enables derivation of various other kinds of information like working capital, capital employed etc.

Marshalling of Assets and Liabilities : Order of Liquidity/Permanence

The process of arranging the balance sheet items (assets and liabilities) in a specific order is called Marshalling of assets and liabilities.

Marshal

Meaning

  1. To arrange in a logical order.
  2. Place in proper rank.
  3. Make ready for action or use.

Synonyms

  1. Assemble.
  2. Line up.
  3. Organise.
  4. Position.
  5. Collect.
  6. Gather together.

The two most common orders followed in this process are Order of liquidity and Order of permanence.

Order of Liquidity

Under this method, the assets are arranged in the decreasing order of their liquidity.

Balance Sheet of M/s Free Flow Fluids as on 30th June 2007
LiabilitiesAmountAssetsAmount
Bank Overdraft
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
11,60,000
...
15,00,000
26,00,000
...
...
27,00,000
35,00,000
8,00,000
2,54,20,0002,54,20,000

Liquidity

Liquidity is the characteristic of an asset to get converted to cash. The faster an asset can be converted to cash, the more liquid it is.

Arrangement of Assets

The highest liquid asset is placed first (at the top) and the least liquid asset is placed last.
  • Cash is considered to be the highest liquid asset. We do not need any time to convert cash to cash.
  • Goodwill is considered to be the least liquid asset. It is attached to the organisation and can be realised only when the organisation is dissolved.

Arrangement of Liabilities

Every liability is supported to the extent of its value, by one or more assets. Assuming all liabilities are cleared by paying out, we need cash to clear the liabilities. Since short term liabilities are to be cleared at short notice, we use assets that can be speedily converted to cash (more liquid assets) to clear the short term liabilities.

Short term liabilities like creditors, bank overdraft are matched with assets which are more liquid, while long term liabilities are matched with lesser liquid assets.

Since assets with higher liquidity are placed at the top (first), under this method, the liabilities to be paid out at the earliest are placed first (so that they match the higher liquid assets) and the liabilities to be paid out last are placed last.

  • Capital is the liability that is paid out last. Paying out capital amounts to dissolving the organisation. It has to be paid out only after every other liability is paid out.
  • Bank Overdraft is the liability which has to be paid out at the earliest. It gets adjusted with every transaction carried on that involves the organisation's bank account.

Order of Permanence

Under this method, the assets are arranged in the decreasing order of permanence.

Balance Sheet of M/s Free Flow Fluids as on 30th June 2007
LiabilitiesAmountAssetsAmount
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
Bills Receivable
Bank Balance
Cash
8,00,000
35,00,000
27,00,000
...
...
26,00,000
15,00,000
...
1,16,000
2,54,20,0002,54,20,000

Permanence

The affinity of an asset to stay with the organisation or the longevity of the life of an asset with the organisation. The longer an asset stays with an organisation, the more permanence it has.

Arrangement of Assets

The asset with the highest permanence is placed first (at the top) and the the asset with least permanence is placed last.
  • Goodwill is considered to be the asset with the highest permanence. It moves out of the organisation only when the organisation is dissolved.
  • Cash is considered to be the asset with the least permanence. It keeps moving in and out regularly.

Permanence can be understood as the inverse of liquidity. Though it is not a requirement that a less liquid asset should have greater permanence, this idea holds in most cases. Thus, the Order of permanence is considered to be the reverse of the Order of Liquidity.

Arrangement of Liabilities

Every liability is supported to the extent of its value, by one or more assets. Assuming all liabilities are cleared by paying out, we need cash to clear the liabilities. To clear short term liabilities we bank on assets that can be speedily converted to cash. Since short term liabilities are to be cleared at short notice, we use assets with a short life span, which are generally the ones that can be speedily converted to cash (more liquid assets) to clear the short term liabilities.

Short term liabilities like creditors, bank overdraft are matched with assets with a lesser permanence (i.e. assets which are more liquid), while long term liabilities are matched to assets with a higher permanence (i.e. assets which are less liquid).

Since assets with higher permanence are placed at the top (first), under this method, the liabilities with higher permanence are placed first (so that they match the assets with higher permanence) and the liabilities with lesser permanence are placed last.

  • Capital is considered to be the liability with highest permanence.
    Paying out capital amounts to dissolving the organisation. It has to be paid out only after every other liability is paid out.
  • Bank Overdraft is considered to be the liability with the least permanence.
    It has to be paid at the earliest. It gets transformed/adjusted with every transaction carried on that involves the organisation's bank account.

Statutory Horizontal Form of Balance Sheet

Indian Companies Act, 1956. Schedule VI PART I
Horizontal Form of Balance Sheet

Stretch/Expand this balance sheet

Balance Sheet of M/s Free Flow Fluids on 30th June 2007
Liabilities A (Previous) A (Current) Assets A (Previous) A (Current)
SHARE CAPITAL: L: (a)
Authorised:
x Equity shares of Rs. _ each
y Preference shares of Rs. _ each

Issued: [L: (b)]

a Equity shares of Rs. _ each
b Preference shares of Rs. _ each

Subscribed Capital: [L: (c), G: (c)]

Equity - p shares of Rs. _ each, Rs. _ called up
Equity - q shares of Rs. _ each, Rs. _ called up
Preference - 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 :
Equity - k shares of Rs._ each
Preference - h shares of Rs._ each
B) By way of bonus shares : [L: (d)]
Equity - r shares of Rs._ each

Less : Calls in Arrears
By Managing Agents/Secretaries/Treasurers [L: (e)]
By Directors
By Others

Add : Forfeited Shares [L: (d)]
(amount originally paid up.)

RESERVES and SURPLUS [L: (g), (h)]

(1) Capital Reserves.
(2) Capital Redemption Reserve.
(3) Share Premium Account [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. [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 [L: (i), (j), (k), (l)]

(1) Debentures [L: (l)]
(2) Loans and advances from banks.
(3) Loans and advances from subsidiaries.
(4) Other loans and advances.

UNSECURED LOANS

(1) Fixed deposits.
(2) Loans and advances from subsidiaries.
[L: (m), (n), (o)]
(3) Short-term loans and advances:
[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 : [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
classes of companies :- Newspaper, Fire
Insurance, theaters, 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 [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
(k) Vehicles

INVESTMENTS : [A: (e), (f), (g)]

(a) In Government or Trust Securities
(b) In Shares [A: (h)]
(c) In Debentures [A: (h)]
(d) In Bonds [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 [A: (i)]
(3) Loose tools
(4) Stock-in-trade [A: (i)]
(5) Works-in-progress
(6) Sundry debtors [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 - [A: (l), (m)]
(a) with Scheduled banks
(b) with others.

(B) LOANS AND ADVANCES [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)

MISCELLANEOUS 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)
during construction
(5) Development expenditure not adjusted.
(6) Other items

PROFIT AND LOSS ACCOUNT [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 arrears or if there is more than one class of shares, the dividends on each such class are in arrears, 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.

Instructions in accordance with which liabilities should be made out Show

(a) Terms of redemption or conversion (if any) of any redeemable preference capital to be stated together with earliest date of redemption or conversion
(b) Particulars of any option on unissued share capital to be specified.
(c) Particulars of the different classes of preference shares to be given
(d) Specify the source from which bonus shares are issued, e.g., capitalisation of profits or Reserves or from Share Premium Account.
(e) Where the managing agent or secretaries and treasurers are a firm, by the partners thereof, and where the managing agent or secretaries and treasurers are a private company by the directors or members of that company.]
(f) Any capital profit on reissue of forfeited shares should be transferred to Capital Reserve
(g) Additions and deductions since last balance sheet to be shown under each of the specified heads.
(h) The word "fund" in relation to any "Reserve" should be used only where such Reserve is specifically represented by earmarked investments.
(i) Loans from Directors, Manager should be shown separately.
(j) Interest accrued and due on Secured Loans should be included under the appropriate sub-heads under the head 'SECURED LOANS". The nature of the security to be specified in each case.
(k) Where loans have been guaranteed by managers and/or directors, a mention thereof shall also be made and also the aggregate amount of such loans under each head.
(l) Terms of redemption or conversion (if any) of debentures issued to be stated together with earliest date of redemption or conversion.
(m) Loans from Directors, managers should be shown separately.-
(n) Interest accrued ant due on Unsecured Loans should be included under the appropriate sub-heads under the head "UNSECURED LOANS"
(o) Where loans have been guaranteed by managers and/or directors, a mention thereof shall also be made and also the aggregate amount of such loans under each head.
(p) The name(s) of the small scale industrial undertaking(s) to whom the Company owe a sum exceeding Rs. 1 lakh which is outstanding for more than 30 days, are to be disclosed.

Instructions in accordance with which assets should be made out Show

Fixed Assets
(a) Distinguishing as far as possible between expenditure upon (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, and (k) vehicles, etc
(b) Under each head the original cost, and the additions thereto and deductions therefrom during the year, and the total depreciation written off or provided up to the end of the year to be stated.

Opening Bal
(+) Additions during the year
(-) Deductions during the year
(-) Accumulated Depreciation

(c) Where the original cost aforesaid and additions and deductions thereto, relate to any fixed asset which has been acquired from a country outside India, and in consequence of a change in the rate of exchange at any time after the acquisition of such asset, there has been an increase or reduction in the liability of the company, as expressed in Indian currency, for making payment towards the whole or a part of the cost of the asset or for repayment of the whole or a part of moneys borrowed by the company from any person, directly or indirectly, in any foreign currency specifically for the purpose of acquiring the assets (being in either case the liability existing immediately before the date on which the change in the rate of exchange takes effect), the amount by which the liability is so increased or reduced during the year, shall be added to, or, as the case may be, deducted from the cost, and the amount arrived at after such addition or deduction shall be taken to be the cost of the fixed asset.
Explanation 1
This paragraph shall apply in relation to all balance-sheets that may be made out as at the 6th day of June, 1966, or any day thereafter and where, at the date of issue of the notification of the Government of India, in the Ministry of Industrial Development and Company Affairs (Department of Company Affairs), G.S.R. No. 129, dated the 3rd day of January, 1968, any balance sheet, in relation, to which this paragraph applies, has already been made out and laid before the company in Annual General Meeting, the adjustment referred to in this paragraph may be made in the first balance-sheet made out after the issue of the said notification.
Explanation 2
In this paragraph, unless the context otherwise requires, the expressions "rate of exchange ", "foreign currency", and "Indian currency", shall have the meanings respectively assigned to them under Sec 43A (12) of the Income-tax Act, 1961 and Explanation 2 and Explanation 3 of Sec 43A(1) shall, as far as may be, apply in relation to the said paragraph as they apply to Sec 43A(1).

[In every case where the original cost cannot be ascertained, without unreasonable expense or delay, the valuation shown by the books shall be given. For the purposes of this paragraph, such valuation shall be the net amount at which an asset stood in the company's books at the commencement of this Act after deduction of the amounts previously provided or written off for depreciation or diminution in value, and where any such asset is sold, the amount of sale proceeds shall be shown as deduction.]

(d) Where sums have been written off on a reduction of capital or a revaluation of assets, every balance sheet, (after the first balance sheet) subsequent to the reduction or revaluation shall show the reduced figures and with the date of the reduction in place of the original cost.

Each balance sheet for the first five years subsequent to the date of the reduction, shall show also the amount of the reduction made.

Similarly, where sums have been added by writing up the assets, every balance-sheet subsequent to such writing up shall show the increased figures with the date of the increase in place of the original cost. Each balance sheet for the first five years subsequent to the date of writing up shall also show the amount of increase made.

Explanation.-
Nothing contained in the preceding two paragraphs shall apply to any adjustment made in accordance with the second paragraph.
Investments
(e) Aggregate amount of company's quoted investment and also the market value thereof shall be shown.
(f) Aggregate amount of company's unquoted investments shall also be shown.
(g) All unutilised monies out of the issue must be separately disclosed in the balance sheet of the company indicating the form in which such unutilised funds have been invested.
(h) showing separately shares fully paid-up and partly paid-up and also distinguishing the different classes of shares and showing also in similar details investments in shares, debentures or bonds of subsidiary companies.
Stock - Work-in-Progress
(i) Mode of valuation of stock shall be stated and the amount in respect of raw material shall also be stated separately where practicable.
(j) Mode of valuation of works-in-progress shall be stated.
Sundry Debtors - Loans and Advances
(k) In regard to sundry debtors particulars to be given separately of -(a) debts considered good and in respect of which the company is fully secured; and (b) debts considered good for which the company holds no security other than the debtor's personal security; and (c) debts considered doubtful or bad.

Debts due by directors or other officers of the company or any of them either severally or jointly with any other person or debts due by firms or private companies respectively in which any director is a partner or a director or a member to be separately stated.

Debts due from other companies under the same management within the meaning of sub-section (1B) of section 370, to be disclosed with the names of the companies.

The maximum amount due by directors or other officers of the company at any time during the year to be shown by way of a note.

The provisions to be shown under this head should not exceed the amount of debts stated to be considered doubtful or bad and any surplus of such provision, if already created, should be shown at every closing under "Reserves and Surplus" (in the Liabilities side) under a separate sub-head "Reserve for Doubtful or Bad Debts".

Bank Balances
(l) In regard to bank balances, particulars to be given separately of-
(1) the balances lying with Scheduled Banks on current accounts, call accounts, and deposit accounts,
(2) the names of the bankers other than Scheduled Banks and the balance lying with each such banker on current accounts, call accounts and deposit accounts and the maximum amount outstanding at any time during the year from each such banker; and
(3) the nature of the interest, if any, of any director or his relative [or the managing agent/secretaries and treasurers of any associate of the latter] in each of the bankers (other than Scheduled Banks) referred to in (b) above.
(m) All unutilised monies out of the issue must be separately disclosed in the Balance Sheet of the company indicating the form in which such unutilised funds have been invested.
Profit and Loss Account
(n) Show here the debit balance of profit and loss account carried forward after deduction of the uncommitted reserves, if any.

General instructions for preparation of balance sheet Show

(a) The information required to be given under any of the items or sub-items in this Form, if it cannot be conveniently included in the balance sheet itself, shall be furnished in a separate Schedule or Schedules to be annexed to and to form part of the balance sheet. This is recommended when items are numerous.
(b) Naye Paise can also be given in addition to Rupees, if desired.
(c) In the case of [subsidiary companies] the number of shares held by the holding company as well as by the ultimate holding company and its subsidiaries must be separately stated. The auditor is not required to certify the correctness of such shareholdings as certified by the management.

(cc) The item "Share Premium Account" shall include details of its utilisation in the manner provided in section 78 in the year of utilisation.

(d) Short-term loans will include those which are due for not more than one year as at the date of the balance sheet.
(e) Depreciation written off or provided shall be allocated under the different asset heads and deducted in arriving at the value of fixed assets.
(f) Dividends declared by subsidiary companies after the date of the balance sheet "[should] not be included unless they are in respect of period which closed on or before the date of the balance sheet.
(g) Any reference to benefits expected from contracts to the extent not executed shall not be made in the balance sheet but shall be made in the Board's report.
(h) The debit balance in the Profit and Loss Account shall be shown as a deduction from the uncommitted reserves, if any.
(i) As regards Loans and Advances, the amounts due from other companies under the same management within the meaning of Sec 370 (1B) should also be given with the names of the companies, the maximum amount due from every one of these at any time during the year must be shown.
(j) Particulars of any redeemed debentures which the company has power to issue should be given.
(k) Where any of the company's debentures are held by a nominee or a trustee for the company, the nominal amount of the debentures and the amount at which they are stated in the books of the company shall be stated.
(l) A statement of investments (whether shown under "Investment" or under "Current Assets" as stock-in-trade) separately classifying trade investments and other investments should be annexed to the balance sheet, showing the names of the bodies corporate (indicating separately the names of the bodies corporate under the same management) in whose shares or debentures, investments have been made (including all investments, whether existing or not, made subsequent to the date as at which the previous balance sheet was made out) and the nature and extent of the investment so made in each such body corporate; provided that in the case of an investment company, that is to say, a company whose principal business is the acquisition of shares, stock, debentures or other securities, it shall be sufficient if the statement shows only the investments existing on the date as at which the balance sheet has been made out. In regard to the investments in the capital of partnership firms, the names of the firms (with the names of all their partners, total capital and the shares of each partner), shall be given in the statement.]
(m) If, in the opinion of the Board, any of the current assets, loans and advances have not value on realisation in the ordinary course of business at least equal to the amount at which they are stated, the fact that the Board is of that opinion shall be stated.
(n) Except in the case of the first balance sheet laid before the company after the commencement of the Act, the corresponding amounts for the immediately preceding financial year for all items shown in the balance sheet shall be also given in the balance sheet. The requirement in this behalf shall, in the case of companies preparing quarterly or half-yearly accounts, etc., relate to the balance sheet for the corresponding date in the previous year.
(o) The amounts to be shown under Sundry Debtors shall include the amounts due in respect of goods sold or services rendered or in respect of other contractual obligations but shall not include the amounts which are in the nature of loans or advances.
(p) Current accounts with directors and manager, whether they are in credit, or debit, shall be shown separately.
(q) A small scale industrial undertaking has the same meaning as assigned to it under Sec 3 (j) of the Industries (Development and Regulation) Act, 1951

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

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

Notes

1. 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

Marshalling of assets and liabilities or arranging the balance sheet items in the statutory formats would give a better understanding of the balance sheet as well as provide for derivation of additional information.

However, there is a lot of other information that is needed by the organisation that is not obtained ready hand from the Balance Sheets even after they are arranged in the aforesaid manner.

Information relating to values of Working Capital, Net Fixed Assets, total Capital employed, long term loans employed in the business, share holders Net Worth, equity share holders Net Worth, Non-Assets (Asset side items not to be considered as fixed assets) etc., are examples of such information.

These values have to be worked out using the information available within the balance sheet.

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".
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