01.03.
3 Elements of Company’s Balance Sheet
(A) LIABILITIES SIDE
1. Share Capital: As in case of other non-corporate entities were the entire capital is brought in by
the proprietors or the partners, in the case of a company, it is brought in by the promoters of the
company or their friends, relatives as well as the general public in case the company is listed. The
capital is known share capital and shareholders get dividend out of the profits of the company as
return on their investment.
Share Capital is broadly divided into: Authorised Capital, Issued Capital, Subscribed Capital,
Called up and Paid up capital.
Authorised Capital is the maximum share capital which a company is allowed to issue during its
lifetime as stated in the Memorandum of Association.
Issued Capital is that part of authorized capital, which is offered for subscription, including shares
offered subscription other than cash (i.e. issue of shares to vendors in consideration for some other
asset purchased).
Called-up capital means that part of subscribed capital which is called-up by the company for
payment by the subscribers to the shares.
Paid up capital The amount that the shareholders have actually paid to the company is called as
paid up capital of the company.
Calls in arrears must be shown by the way of deduction from the called up capital and
Forfeited shares account by the way of addition to the paid up capital.
All the features & practical problems of Share Capital will be discussed in detail when we are
discussing the Chapter Share Capital.
2. Reserves and Surplus: It represents the amount of earning set aside by management for
general or a specific purpose out of profits.
It includes accumulated profits, reserves and funds- such as capital reserves, capital redemption
reserve, balance of securities premium account, general reserve, credit balance of profit and loss
account, and other reserves specifying the nature of each reserve and the amount in respect thereof
including the additions during the current year.
3. Secured Loans: Long-term loans, which are taken against security of one or more assets of the
company, are included under this head. Debentures and secured loans and advances from banks,
subsidiary companies, etc., fall under this category. Likewise interest accrued and due on secured
loans is also recorded under the same head.
4. Unsecured Loans: Loans and advances which are not backed by any security in the form of
assets of the company are shown under this heading. This item includes fixed deposits, unsecured
loans and advances from subsidiary companies, short-term loans and advances from banks and
other sources.
5. Current Liabilities and Provisions: Current liabilities refer to such liabilities, which mature
within a period of one year. They include bills payable, sundry creditors, advance payments and
unexpired discounts, unclaimed dividends, Interest accrued but not paid, and other liabilities.
Provisions refer to the amounts set aside out of revenue profits for some specific liabilities payable
within a period of one year. Those include provision for taxation, proposed dividends, provision
for contingencies, provision for provident fund, provision for insurance; pension and similar staff
benefit schemes, etc. Both the sub headings current liabilities as well as provisions must be shown
separately under two sub-heads- (a) Current liabilities (b) Provisions.
Contingent liabilities:
These are the liabilities which are uncertain in nature and it may arise in future on the happening of
some event. Contingent liabilities are not included in the total of the liability side. These are
shown as a footnote to the Balance Sheet.
Following are the usual types of contingent liabilities:
(i) Claims against the company not acknowledged as debt.
(ii) Uncalled liability on shares partly paid.
(iii) Arrears of fixed cumulative dividend.
(iv)Estimated amount of contracts remaining to be executed on capital account and not provided
for.
(v) Bills discounted not yet matured.
ASSETS SIDE
1.Fixed Assets : These are assets which are meant for use in business and not for sale. These assets
provide a long term economic benefit, usually for more than one year to the firm. These include
goodwill, land, buildings, leaseholds, plant and machinery, railway sidings, furniture and fittings,
patents, livestock, vehicles, etc. These assets are shown at cost less depreciation till the date.
2 Investments: Business is supposed to great profit. When generated, this profit in excess of what
is required for the business can be invested into say, shares or debentures of various companies.
Investments thus represent assets held by an enterprise for earning income. Under this head,
various investments made such as investment in government securities or trust securities;
investment in shares, debentures, and bonds of other companies, immovable properties, etc., are
shown.
3.Current Assets, Loans and Advances : One the fixed assets are in a state of readiness to produce
or provide goods and services, the company needs current assets to carry out business operations.
These assets are held for consumption of for sale and are expected to be realized in cash during the
normal operating cycle. Current assets include inventories, debtors, cash etc. Loans and advances
refer to those assets which are held for a short term and are expected to be realized within one
year. These include advance payments, loans to subsidiary companies etc. Both the sub headings-
current assets as well as loans and advances must be shown separately under two sub-heads- (a)
Current Assets (b) Loans and Advances. It includes interest accrued on investment, inventories,
sundry debtors, bills receivable, cash and bank balances while loans and advances and other
advances like prepaid expenses, etc.
4. Miscellaneous Expenditure: The expenditure which has not been fully written off shown under
this heading. It includes preliminary expenses, advertisement expenditure, discount on issue of
shares and debentures, share issue expenses, etc.
5. Profit and Loss Account: When the Profit and Loss account shows a debit balance, i.e., loss
which could not be adjusted against general reserves, is shown on the asset side of the Balance
Sheet.
01.04 All the monetary transactions relating to the business have impact on financial
statements.
01.05 Simple points to identify the impact of the transactions **
↑ Asset = Dr; ↓ Liability = Dr; ↑ Expenses = Dr
↓ Asset = Cr; ↑ Liability = Cr; ↓ Expenses = Cr
