How to Prepare a Balance Sheet of Company

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How to Prepare a Balance Sheet of Company

>> JANUARY 3, 2010

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Prof. Vinod Kumar has received the post graduate degree in Commerce from ... read more

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Preparation of balance sheet of company is very necessary, because Indian Company law 1956 gives strict instruction about the format of balance sheet of a company. A company can make balance sheet according to the form given in Part I of schedule VI of company law 1956. A company can also make balance sheet summary form, but it has to attach its schedule in which explanation of different components are given. We are explaining different components of balance sheet of company which will be helpful for students to prepare balance sheet of company. [* Remember the form of balance sheet under Section 211]

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You should remember balance sheet and its all components thoroughly. It can be made either horizontal or vertical form. But total of assets should be equal to total of liabilities. Here, I am explaining these components.
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Assets are written in right side of companys balance sheet. In these assets, we include. 1.

1. Fixed Assets
We will show all fixed assets which are purchased and used in business. This is the long term expenditure of company. In these assets, we will include following.

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We also include intangible assets in fixed assets head. Following are the main examples of intangible assets.
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Depreciation is charged on every fixed asset except land, because value of land will increase after some time. Here, students are given advice that they should calculate the value of net fixed assets, if different fixed assets are purchased or sold during the year. The following table will be the part of working note.

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2. Treatment of Investment in balance sheet

Investment is outflow of fund for getting interest or dividend earning. So, it is the asset of company and will include in assets side. The following are the main investments.

a) b)

Investment in Government or trust securities. Investment in Shares, debentures or bonds

The following points must be kept in mind while you are showing investment in balance sheet.

i)

Investment in fully paid up shares must be shown separately from investment in partly paid up shares.

ii)

Investment in the form of shares in subsidiary company must be shown separately from investment in any other company.

c)

Investment in immovable properties.

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d)

Investment in the capital of partnership firms.

Investment will be shown on cost or market value which is less.

3. A)

Treatment of current assets , loan and advances in balance sheet Current assets

Current assets will be shown in separate head and following components will be included in it.

i) ii) iii) iv) v) vi) vii) viii)

Stock in trade Work in progress Stock of stationary Stock of loose tools Stock of stores and spare parts Sundry debtors less provision for doubtful debts Cash in hand Bank balance

a)

With schedule bank

b)

With other banks

B)

Loan and Advances

The amount which is given by company to others in the form of loan or advances will be shown in asset side. Followings are its main examples.

a) b) c) d) e)

Advance and loan to subsidiary company Advance and loan to partnership firm Bill of exchange / Bill receivables Advance expenses paid Outside incomes.

4.

Miscellaneous expenditures

Expenses which are not written off will be shown in asset side of balance sheet. There is no market value of these expenses. Examples are given below.

i) ii)

Preliminary expenses Commission debentures or brokerage of subscription of shares or

iii) iv) v)

Discount allowed on issue or shares and debentures Interest paid out of capital during construction Development expenditure

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5.

Profit and Loss Account

If company suffers net loss after adjusting all reserves, then it will be shown in asset side. This amount can be also deducted from reserves in liabilities side. That time, we will not show it in asset side.

Liabilities Side of Balance Sheet

Liabilities are written in left side of companys balance sheet. In these liabilities, we include. 1. Share Capital

In share capital of company, we have to show authorized capital, subscribed capital, called up capital and paid up capital. For calculating paid up capital, we will deduct calls unpaid and add original paid up amount of forfeited shares.

2.

Reserves and Surplus

Following reserves will be shown in liabilities side of balance sheet of company.

i) ii) iii) iv)

Capital reserves Share premium account Other reserves Surplus balance in profit and loss account after providing dividend, bonus or reserves.

v) 3.

Sinking fund

Secured Loan

If any loan is taken by company after keeping any asset as security, then it will be shown in secured loan head. Its detail is given below.

i) ii) iii) iv)

Debentures Loan and advances from subsidiaries Other loan and advances Interest payable on secured loan

4.

Unsecured loan

Following will be the unsecured loan.

i) ii) iii)

Fixed deposits of public Short term loans and advances Other loans

5.

Current Liabilities and Provisions

All liabilities which is payable within one year, will be included in current liabilities head.

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A) Current Liabilities

i) ii) iii) iv)

Acceptance or bill payables Sundry creditors Interest payable other than on loan Outstanding expenditures

B)

Provisions

i) ii) iii) iv) v)

Provisions for taxations Proposed dividend Provision for provident fund Provision for insurance, pension and other staff benefit schemes Other provisions

6.

Contingent liabilities

These types of liabilities will not be shown in balance sheet. But a simple footnote is made for its detail. Following may be the contingent liabilities of company.

i) ii) iii) iv)

Claims against the company not acknowledge as debts Uncalled liability on shares paid Areas of fixed cumulative dividends Any other contingent liability of company

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6 comments:
Anonymous, January 10, 2010 3:17 AM Dear Sir, My email ID mvshah54@yahoo.com. My question is that what are the entries for the Authorised share capital and its related other real entry which I can pass in Tally. In the printed balance sheet we can see these type of ledger. Please do help me regards

Prof. Vinod Kumar, January 11, 2010 7:51 AM Dear Student, there is no need to pass the entries of authorised capital. You should pass the voucher entry what you have received from shareholder. These may same as the lesson of issue of share capital of corporate accounting or you can just pass entry cash/bank/creditcard a/c dr. and share capital a/c cr. after this you can export it to excel and add authorised capital for making the balance sheet of company. All printed balance sheet are edited first in ms excel then it is published ok

Anonymous, March 26, 2010 10:22 PM what are bonus shares..? n where r bonus shares shown in d balance sheet..?

mikerickin, September 20, 2010 6:03 AM While preparing the company can do a number of issues and balance sheet size will be very accurate. First, put the value of reserve attention and ensure that all activities were taken into account. Goods whose value should be calculated necessarily include property, equipment used in office furniture to do their office, cash available in bank accounts, investments and money been received yet. The second step is to calculate your debts, including loans, mortgages, leases, and any other thing that needs to be paid off. Community Association

jessica, November 15, 2010 10:40 AM It was difficult.. Thanks for advices to prepare good balance sheet format..

sudhir, February 25, 2011 4:44 AM how to prepare a balance sheet of a company schedule wise. like i.e. details of fixed assets,s.debtor n creditors,etc..

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