In the first part of "How to Read the Balance Sheet of a Company?", we have taught the assets and liability of balance sheet of company. Hope, you have learned lots of basics. Now, in second part, we will learn advance reading of balance sheet's assets by explaining more detail of items in this.
(A) Fixed Assets
All the assets which we buy for more than one years and which brings the money in our pocket in the form of earning, will be our fixed asset. We used it for generating it as tool to earn the money. Now, read main types of fixed asset.
1. Tangible Assets
Tangible fixed asset asset is the fixed asset which we can see and touch. Like land, building, machine and vehicle of company. These tangible assets has two parts.
(i) Depreciated Assets
Depreciated assets are those fixed assets whose value will decrease after time. Its value is decreased due to depreciation. At the end of year, value of machine or vehicle will be less than beginning of year because we have used and it has depreciated. We will decrease he value of depreciation from same fixed asset.
This depreciation is calculated on the basis of straight method or diminishing balance method.
Value of depreciation is calculated by following formula
= Cost of fixed asset - Salvage value / no. of years usages
Suppose cost is Rs. 100,000 and active life is 10 years =
Depreciation value is = 1,00,000/10 = 10,000
(ii) Appreciated Assets
Appreciated asset are those whose value will increase after spending of time.
For example, bought land of company. After time spending its value will increase but still it will show on book value in balance sheet and its will start to show at the liquidation of company for paying shareholders.
2. Intangible Assets
Intangible fixed assets are those which we can not see or touch. We can only feel and understand.
Following are the main intangible assets
a) Goodwill
If company's book value of asset is Rs. 100 per share but its share's market value is 200, it means rest Rs. 100 is the goodwill of company as intangible asset.
b) Patents and copyrights
If other will take your tech, they have to pay you patent fee as your earning because you have intangible asset in the form of patent of specific tech advancement. If you have written contents or book, it will give you power of copyright which is also power of your company.
c) Trade marks
Trade mark and log is also intangible fixed asset of company
3. capital work in process
4. Non current investments
Non current investments are those fixed asset which will not mature in one year. In this, company may include bond and debenture for long periods.
5. Long term loan and Advances
If company has paid the money to other person or company as loan and advances more than one year, it will show in the balance sheet as long term loan and advances.
6. Other non current assets
All non current assets which is not included in above will be other non current assets.
B. Current Assets
All current assets which are not fixed asset and which convert into cash or bank within one year. Following are is main parts which shows in the balance sheet which you can read.
1. Inventories
Inventories is that current asset which is bought to make it for selling within one year. Following are main inventories.
raw material, work in process and finished goods
2. Trade receivables/ account receivables
When inventories are sold. This inventories goes to other person and we got the money with profit and it is in cash or credit. IF goods are sold in the credit, we have to show the amount receivable from debtors as the current asset because same amount will receive within one year. Some debtors will be defaulters. So, we deduct the provision of bad debt in advance and net amount show in the balance sheet as trade or account receivables.
3. Cash and cash equivalents
cash and cash equivalents are cash in hand and cash at bank or commercial papers which will mature wiithin 3 months.
4.Short term loan and advances
Short term loan and advance are those which is given for one year and it is our current asset because it will liquid within one year.
5. Other current assets
All other current assets, we will write in this section which does not add in above current asset.
Now, we start to read the balance sheet of NIIT Company
In above balance sheet we are comparing with previous 4 time and amount is in crores of Rs.
1. Tangible asset is showing 39.80 but previous time 44.32, it means, some tangible assets in fixed assets are depreciated or sold. So, value of fixed tangible asset has decreased by 4.52
2. Previous time intangible asset is 17.52 and now is 25. 30, it means it has increased by 7.78
3. Its non current investment has also increased.
4. Deferred Tax Assets (NET) is showing. First of all learn it. Deferred tax means the difference of tax which is calculated by company and by income tax department. If it shows in asset side, it means, it has to receive from income tax department. Means we have paid more. So,this is our fixed asset. It shows, its value is same.
5. Long term loan and advance has increased from previous time.
6. Other non current assets has decreased.
7. Its inventories has increased
8. Its trade receivable has increased
9. Its cash has increased
10. Its short term loan and advances has increased
11. Its other current asset has increased from previous period.
Comments