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

Dr	Plant and Machinery a/c	Cr
Date	Particulars	J/F	Amount	Date	Particulars	J/F	Amount
01/01/09 01/07/09	To Balance b/d To Bank a/c	— —	2,50,000 1,00,000	31/12/09 31/12/09	By Depr. on P & M a/c By Balance c/d	— —	60,000 2,90,000
			3,50,000				3,50,000
01/01/10			2,40,000

Dr	Depreciation on Plant and Machinery a/c	Cr
Date	Particulars	J/F	Amount	Date	Particulars	J/F	Amount
31/12/09	To Profit and Loss a/c	—	60,000	31/12/09	By Profit and Loss a/c	—	60,000
			60,000				60,000

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

Dr	Plant and Machinery a/c	Cr
Date	Particulars	J/F	Amount	Date	Particulars	J/F	Amount
01/01/09 01/07/09	To Balance b/d To Bank a/c	— —	4,00,000 1,00,000	31/12/09	By Balance c/d	— —	5,00,000
			5,00,000				5,00,000
01/01/10	To Balance b/d		5,00,000

Dr	Depreciation Reserve (Plant and Machinery) a/c	Cr
Date	Particulars	J/F	Amount	Date	Particulars	J/F	Amount
31/12/09	To Profit and Loss a/c	—	60,000	01/01/09 31/12/09	By Balance b/d By Profit and Loss a/c	— —	1,50,000 60,000
			2,10,000				2,10,000
				01/01/10	By Balance b/d		2,10,000

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 31^st December __
Liabilities	Amount	Assets	Amount
... ... ...	... ... ...	... 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 31^st December __
Liabilities	Amount	Assets	Amount
... 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 31^st December __
Liabilities	Amount	Assets	Amount
... ... ...	... ... ...	... 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.

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