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This
objective is achieved by different accounting reports prepared by
a company. One of the most important reports is the Balance
Sheet.
Balance Sheet is concerned with reporting the financial position of
a company at a particular point in time. The balance sheet shows
the assets and liabilities classified and arranged in a specific
manner.
Classification of Items:
These are those assets, which are acquired for relatively long
periods for carrying on the business of the enterprise. Such
assets are not meant for resale. For example, Land and Building,
Plant and Machinery, etc. Current assets provide benefits to the
organization by their exchange into cash. In the case of fixed
assets, value addition arises by facilitating the process of
production or trade.
All man made things have limited life. In accounting, we are
concerned with the useful life of the assets. Useful life is the
period for which a fixed asset could be economically used.
Benefits from the fixed assets will flow to the organization
throughout its useful life.
Valuation of the fixed assets is usually made on the basis of
original cost. However, since the assets have the limited life the
cost will be expiring with the expiration of the life. Thus, valuation
of the asset is reduced proportionate to the expired life of the
asset. Such expired cost is known as depreciation.
Example: Suppose a trader buys a delivery van at a cost of Rs.
50,000. Assume that the van will have to be discarded as junk at
the end of five years. In this case we take a depreciation of Rs.
10,000 per year and the process of providing depreciation for
each year will continue. At the end of the fifth year the valuation
of the asset will be zero. The value of the assets at cost is usually
referred to as gross fixed assets and the amount of depreciation
to date as accumulated depreciation. Net value of the asset is
usually referred to as net fixed assets.
Fixed assets normally include assets such as land, building, plant,
machinery, etc. All these items, with exception of land, are
depreciated. Land is not subject to depreciate and hence shown
separately from other fixed assets.
Accrued Liabilities
Contingent Liability
These are liabilities which will exist or not, will depend on any
future incident. For the sake of shareholders’, it is shown in the
footnote in the Balance Sheet. The items, which may come under
this sub-heading, are:
i. Claims against company, which are still not accepted by the
company.
ii. Liability for amount uncalled on partly paid shares.
iii. Arrears of fixed cumulative dividends.
iv.Estimated amount of incomplete contracts (capital
expenditures), arrangement of which is not made.
Other contingent liability. For example, liability for bill discounted,
disputed liabilities or claim, etc.
Accounts Receivables