How to Prepare a Balance Sheet of Company

>> January 3, 2010


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]


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.


Assets Side of Balance Sheet


Assets are written in right side of company’s balance sheet. In these assets, we include.


   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.


I)                    Land

II)                  Building

III)                Plant and Machinery

IV)               Furniture and Fixture

V)                 Leasehold assets

VI)               Development of property

VII)             Vehicles

VIII)           Live stocks

IX)                Railway sidings

X)                  Equipment


We also include intangible assets in fixed assets head. Following are the main examples of intangible assets.


I)        Goodwill
II)        Patents
III)      Trade marks and design

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.



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)                  Investment in Government or trust securities.

b)                  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.


d)                  Investment in the capital of partnership firms.


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


3.  Treatment of current assets , loan and advances in balance sheet



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


i)                    Stock in trade

ii)                   Work in progress

iii)                 Stock of stationary

iv)                 Stock of loose tools

v)                  Stock of stores and spare parts

vi)                 Sundry debtors less provision for doubtful debts

vii)               Cash in hand

viii)              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)      Advance and loan to subsidiary company

b)      Advance and loan to partnership firm

c)       Bill of exchange / Bill receivables

d)      Advance expenses paid

e)      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)                    Preliminary expenses

ii)                   Commission or brokerage of subscription of shares or debentures

iii)                 Discount allowed on issue or shares and debentures

iv)                 Interest paid out of capital during construction

v)                  Development expenditure


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 company’s 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)                    Capital reserves

ii)                   Share premium account

iii)                 Other reserves

iv)                 Surplus balance in profit and loss account after providing dividend, bonus or reserves.

v)                  Sinking fund

3.   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)                    Debentures

ii)                   Loan and advances from subsidiaries

iii)                 Other loan and advances

iv)                 Interest payable on secured loan


4.  Unsecured loan


Following will be the unsecured loan.


i)                    Fixed deposits of public

ii)                   Short term loans and advances

iii)                 Other loans


5. Current Liabilities and Provisions


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


A) Current Liabilities


i)                    Acceptance or bill payables

ii)                   Sundry creditors

iii)                 Interest payable other than on loan

iv)                 Outstanding expenditures


B)      Provisions


i)                    Provisions for taxations

ii)                   Proposed dividend

iii)                 Provision for provident fund

iv)                 Provision for insurance, pension and other staff benefit schemes

v)                  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)                    Claims against the company not acknowledge as debts

ii)                   Uncalled liability on shares paid

iii)                 Areas of fixed cumulative dividends

iv)                 Any other contingent liability of company





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10 comments:

Anonymous,  January 10, 2010 at 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 at 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 at 10:22 PM  

what are bonus shares..? n where r bonus shares shown in d balance sheet..?

mikerickin September 20, 2010 at 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 at 10:40 AM  

It was difficult.. Thanks for advices to prepare good balance sheet format..

sudhir February 25, 2011 at 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..

Arthur Martin Njovo October 11, 2012 at 4:57 AM  

quite helpful,,,i passed my exam
thanx,regards

Anonymous,  December 6, 2012 at 12:00 AM  

Sir.
You are doing a great job sir. i had lot of doubts in accounts after seeing ur explanation i cleared few doubts. i hope after reading your explanations i will get fully cleared... thank you soooo much sir.... we need yout service more and more.....

Anonymous,  February 23, 2014 at 10:56 PM  

sir
very helpful

thanx

aditya singh March 14, 2014 at 12:11 AM  

thanks sir
It is simple and very helpful format
thanks

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