Corporate Balance Sheet

Balance sheet is defined as a statement of the financial position of an enterprise as at a

given date, which exhibits its assets, liabilities, capital reserves and other account
balances at their respective book values. As per part I of the schedule to the companies
there are two forms of balance have been provided i) Vertical and ii) Horizontal. These
two forms of balance sheet as required to be prepared by a corporate enterprise has been
given below:Horizontal Form: Balalnce sheet
Liabilities

Figures
for the
current
year

Figures
of the
previous
year

Assets

Share capital

Fixed Assets

Reserve & Surplus

Investments

Secured loans

Current Assets Loans

and Advances

Current liabilities and

provisions
A. Current
liabilities
B. Provisions

A. Current Assets
B. Loans and
advances
Miscellaneous
Expenditure ( to the
extent not written off)
Profit and loss
Account

Figures
for the
current
year

Figures
of the
previous
year

Vertical form of balance sheet

Schedule
No.

I. Source of Funds
1. Share holders funds:
a. Capital
b. Reserve and Surplus
2. Loan Funds:
a. Secured Loans
b. Unsecured Loans
Total:

Figures at Figure at the

the end of end of the
the current previous year
year

II. Application of Funds:

1. Fixed Assets:
a. Gross Block
b. Less : Depreciation
c. Net Block
d. Capital Work-in-progress
2. Investments
3. Current Assets, Loans and Advances:
a. Inventories
b. Sundry debtors
c. Cash and Bank balances
d. Other current assets
e. Loans and advances
Less: Current Liabilities and Provisions:
a. Liabilities
b. Provisions
Net current Assets
4. Miscellaneous expenditure
5. Profit and loss Account
Total:
All the necessary detains under each item as required in the Horizontal form should be
given in separate Schedules. All the Schedules, accounting policies and notes should form
an integral part of the balance sheet. Figures in the balance sheet may be rounded off to
the nearest 000 as may be convenient or may be expressed in the decimal of thousands.
Vertical format of balance sheet helps to present information about assets, liabilities and
equity in precise manner. Under this format balance sheet informations are classified into
sources of funds and application of funds.
Sources of funds:Two major sources of funds are Shareholders funds and loan funds. Share holders funds
are further sub-classified into two categories, namely Share capital and reserve and
surplus.
Share capital:- Share capital implies equity share capital and preference share capital.
The requirement of Schedule VI of the companies Act states that share capital has to be
distinguished into different classes and should be divided into authorized, issued,
subscribed and paid up capital. Authorized share capital represents the amount authorized
by Registrar of Companies and mentioned in the Memorandum of Association of the
company being the maximum amount to be raised. Issued capital represents that part of
authorized capital which has been issued to the public by the company. Subscribed capital
denotes the public response to the issue and paid up capital implies the amount actually

paid up on share capital issued and subscribed. Normally issued, subscribed and paid up
capital are same.
Reserve and Surplus:- Reserve and surplus imply accumulated revenue profit of the
company and capital profit like share premium and revaluation reserve. Reserves may be
broadly of two types- free reserves and specific reserves. Free reserves can be utilized for
any purpose e.g. for payment of dividend, distribution as bonus share, deployment in the
business expansion programme etc. Specific reserves have specific use e.g. debenture
redemption reserve, investment allowance reserve. Specific reserves become free only
when the uses, for which these were created, are met. Surplus denotes the residue of
profit left in the profit and Loss account after distribution of dividend and transfer to
reserves.
Different items to be shown under the schedules of Reserve and surplus
1. Capital Reserve
2. Capital Redemption Reserve
3. Share Premium Account
4. Other Reserves
5. Surplus
6. Proposed addition to reserves
7. Sinking Funds

Loan Funds
Loan funds may come from secured loans which are obtained against security of assets
and unsecured loans. Secured loans are borrowing against security of companys assets. A
loan can be obtained against security of a particular asset or a class of assets. The nature
of security attached is to be specified in each case. If redeemable debentures are issued,
terms of redemption or conversion together with earliest date of redemption or
conversion should be stated. Borrowing without any asset backing are called unsecured
loan. Public deposits, inter corporate deposits, commercial papers are instances of
unsecured borrowing instruments. The subscribers to these instruments depend solely on
the reputation of the issuing company.
Secured loans
1. Debentures
2. Loans and advances from banks
3. Loans and Advances from subsidiaries
4. Other loans and advances
Unsecured loans
1. Fixed Deposits
2. Loans and advances from subsidiaries
3. short term loans and advances
a. from banks
b. from others.

Application of funds
Three major application of funds are i) tangible and intangibles fixed assets titled as gross
block, ii) investments iii) net current assets.

Gross Block

The caption Gross Block covers all the types of fixed assets used in the busines
s. Generally fixed assets are shown at gross value and then accumulated depreciation is
deducted therefrom and net block is also presented.
Fixed Assets:
a. Land & Building
b. Plant and machinery
c. Free hold premises
d. Furniture and Fixture and fittings
e. Vehicles
f. Good will
g. Loose Tools
h. Patent
i. Copy Right
j. Trade mark etc.
Investments:- Assets shown under the head Investments are investments outside the
business. Whenever a company has some free cash it can either temporarily invest
outside the business as short term investments. Companies can also invest money in
subsidiaries, joint ventures and other group of companies and also in different types of
organizations including in Government securities.

Current Assets and Loans and advances

No business can run simply with fixed assets. It needs working assets like inventories,
debtors cash. These are called current assets. Also a business needs to give various types
of advances in the course of business like advances to employees, advance tax, advance
to suppliers etc. these are clubbed with current assets and shown together as Current
Assets, and loans and Avances. The current liabilities and provisions are deducted to get
the Net current assets.
Current Assets:1. Cash in hand
2. Cash at Bank
3. Marketable Securities
4. Short-term investmens
5. Bills Receivable
6. Sundry Debtors
7. Inventories
8. Work-in progress
9. Prepaid expenses

Current Liabilities and Provisions

In the course of business, an enterprise incurs certain working liabilities like goods and
services purchased but not paid( they are called trade creditors for goods purchased on
credit, and expenses creditors for expenses incurred but not paid). These are also termed
as current liabilities. In addition, an enterprise has to provide for certain known liabilities
which is certain to occur in future. Examples are retirement benefits like gratuity payable
to employees on retirement, warranty claim to be paid to customers for non-satisfactory
product / service, tax liability which is to be assessed in the future, dividend which has

been planned to be paid but actually to be declared by the company in its annual general
meeting in future. These are called provisions.
Current liabilities:1. Outstanding expenses
2. Bills payable
3. Sundry Creditors
4. Short-term-Advances
5. Income-tax payable
6. Dividends payable
7. Bank overdraft
Provisions:
1. Provisions for taxation
2. Proposed dividends
3. For contingencies
4. For provident fund scheme
5. For insurance, pension, and similar staff benefit scheme
6. other provision

Miscellaneous expenditure
A company incurs certain expenses like preliminary expenses ( which is incurred at the
time of formation of the company by way of legal fees, registration charges, etc.), share
issue expenses incurred for issuing of equity and preference shares, debentures issue
expenses and so on. These expenses are written off over a period of time as these are
capital expenditure. So they treated as miscellaneous expenditure and to the extent of not
written off is presented in the balance sheet as application of funds.