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Balance Sheet | Format of Balance Sheet | Problem and Solution

Arjun EP

Published on: July 4, 2020

Balance Sheet

Balance sheet is a statement; it is not account.

It is a representation of the financial position of an organization for specified date.

It has liabilities and assets side.

Liabilities provide information about owner’s equity and claim of creditors.

Debit balances are shown in assets side and credit balances are shown in liabilities side.

Assets show nature, value and financial position of organization.

Liabilities are separated as shareholders’ equity, liabilities and profit.

Characteristics of a balance sheet

The main characteristics of balance sheet are given below:

Balance sheet is a statement; it is not an account.

It is prepared on a particular date; thus, the information contained in it is valid only for that date.

It is a summary of balances of those ledger accounts, which have not transferred to the income statement.

It shows the nature and value of assets and amount of liabilities at a given date.

Importance and objectives of balance sheet

The main importance of balance sheet are given below:

It helps to know the financial position of organization.

It helps to judge debt paying capacity of organization.

It helps to know owner’s equity.

It presents details of capital like authorized, issued, called-up and paid up.

It helps to analyze ratio and cash flow statement.

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Marshaling of assets and liabilities

Marshaling denotes the order in which assets and liabilities are shown in the balance sheet.

Assets and liabilities can be marshaled in two ways:

In order of liquidity

In order of permanency

In order of liquidity

In this method, assets are marshaled in order to they can be converted into cash.

The most liquid asset is shown first, like cash and the least liquid is shown last like goodwill.

The liabilities of a business are arranged in order of urgency of payment.

The one which is most urgent to be paid is shown first and the least urgent to be paid is shown last.

In order of permanence

In this method, most permanent assets are shown first like fixed assets and at the end current assets.

Similarly, long term liabilities are shown first and at the end current liabilities.

This method is exactly the reverse of the first method.

IN ORDER OF LIQUIDITY		IN ORDER OF PERMANENCE
Assets	Liabilities	Assets	Liabilities
Cash and bank	Bills payable	Goodwill	Equity shares
Sundry debtors	Sundry creditors	Trade mark	Share premium
Bills receivable	Outstanding expenses	Land and building	Preference shares
Prepaid expenses	Advance income	Plant and machinery	Reserve and surplus
Closing stock	Bank overdraft	Furniture and fitting	Debentures
Investment	Long-term loan	Motor vehicles	Long-term loan
Motor vehicles	Debentures	Investment	Bank overdraft
Furniture and fitting	Reserve and surplus	Closing stock	Advance income
Land and building	Preference shares	Prepaid expenses	Outstanding expenses
Plant and machinery	Share premium	Bills receivable	Sundry creditors
Trade mark	Equity shares	Sundry debtors	Bills payable
Goodwill		Cash and bank	Provision
		Prepaid and advance
		Miscellaneous expenditures

Keep in mind (KIM)

In class XII, balance sheet is prepared in order of permanence,

In class XI, balance sheet should be prepared in order of liquidity, but mix method is applied,

Assets are arranged according to in order of liquidity and liabilities according to in order of permanence

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The general specimen of balance sheet is presented below for class 9, 10 & 11

Balance Sheet

XYZ Traders

As on 31^st December 20X1

Liabilities		Amount	Assets		Amount
Capital	xxxx		Cash in hand		xxxx
Add: Net profit	xxxx		Cash at bank		xxxx
Less: Drawings	(xxx)		Goodwill		xxxx
Less: Net loss	(xxx)		Plant and machinery	xxxx
Add: Interest on capital¹⁰	xxxx	xxxx	Less: Depreciation⁵	(xxx)	xxxx
Outstanding expenses:			Land and building	xxxx
Salary²	xxxx		Less: Depreciation⁵	(xxx)	xxxx
Wages²	xxxx		Furniture and fittings	xxxx
Other expenses	xxxx	xxxx	Less: Depreciation⁵	(xxx)	xxxx
…% Loan	xxxx		Vehicles xxxx	xxxx
Add: O/s interest⁴	+ xxx	xxxx	Less: Depreciation⁵	(xxx)	xxxx
Advance/unearned income	xxxx		Patents, copy right, trade mark		xxxx
Less: Earned⁸	(xxx)	xxxx	Loose tools		xxxx
General reserve		xxxx	Store and spare parts		xxxx
Capital reserve		xxxx	Investment	xxxx
Contingency reserve		xxxx	Add: Accrued interest⁷	+ xxx	xxxx
Sinking fund		xxxx	Prepaid/advance expenses³		xxxx
Creditors (A/P, B/P)	xxxx	xxxx	Debtors (B/R, A/R)	xxxx
Less: Discount on creditors	(xxx)		Less: Bad debts (new)*	(xxx)
Bank overdraft		xxxx		xxxx
Manager’s commission payable⁶		xxxx	Less: PBD*	(xxx)
				xxxx
			Less: Discount on debtors*	(xxx)	xxxx
			Preliminary expenses	xxxx
			Less: Written off⁹	(xxx)	xxxx
			Insurance claim receivable		xxxx
			Closing stock (Inventory, merchandise)		xxxx
		xxxxx			xxxxx

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

Problem: 4A

BK Traders has following accounts balances on 31^st December 2021:

Name of ledgers	Amount	Name of ledgers	Amount
Land and building	4,00,000	Capital	616,000
Plant and machinery	2,12,000	General reserve	25,000
Motor bike	80,000	Sinking fund	12,000
Furniture and fixture	50,000	Net profit	55,000
Patent and trade mark	20,000	Capital funds	40,000
Fixed deposit into bank	70,000	Secured loan	250,000
Goodwill	30,000	Unsecured loan	35,000
Bills payable	65,000	Closing stock	69,000
Sundry creditors	30,000	Cash in hand	25,000
Outstanding expenses	16,000	Bills receivable	45,000
Advance income received	2,000	Prepaid expenses	8,000
Bank overdraft	13,000	Advance tax paid	3,000
Investment in shares	50,000	Preliminary expenses	12,000
Sundry debtors	75,000	Spare parts (loose tools)	5,000
Income receivable	5,000

Required: Balance sheet

[Answer: Balance sheet = $11,59,000]

SOLUTION

Balance sheet

BK Traders

On 31^st December 2021

Liabilities		Amount	Assets	Amount
Capital	616,000		Cash in hand	25,000
Add: Net profit	+55,000	6,71,000	Land and building	4,00,000
Bills payable		65,000	Plant and machinery	2,12,000
Sundry creditors		30,000	Motor bike	80,000
Outstanding expenses		16,000	Furniture and fixture	50,000
Advance incomes recd.		2,000	Patent and trade mark	20,000
Bank overdraft		13,000	Fixed deposit into bank	70,000
General reserve		25,000	Goodwill	30,000
Sinking fund		12,000	Investment in shares	50,000
Capital funds		40,000	Sundry debtors	75,000
Secured loan		2,50,000	Income receivable	5,000
Unsecured loan		35,000	Closing stock	69,000
			Bills receivable	45,000
			Prepaid expenses	8,000
			Advance tax paid	3,000
			Preliminary expenses	12,000
			Spare parts (loose tools)	5,000
		11,59,000		11,59,000

Problems and Answers of Balance Sheet

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 4A

BR Enterprises has following extracted balances on 31^st December:

Name of ledgers	Amount	Name of ledgers	Amount
Goodwill	58,000	Capital	5,95,500
Plant and machinery	3,00,000	Bank loan	2,00,000
Vehicles	4,50,000	General reserve	10,000
Furniture and fixture	80,000	Sinking fund	5,000
Patent and trade mark	50,000	Capital reserve	35,000
Investment in debenture	1,00,000	Unsecured loans	2,50,000
Account payable	13,000	Cash in hand	25,000
Sundry creditors	11,000	Account receivable	6,000
Outstanding expenses	50,000	Prepaid expenses	8,000
Advance income received	18,000	Advance given to KL Traders	40,000
Assets replacement fund	76,000	Advance tax paid	3,000
Sundry debtors	75,000	Preliminary expenses	12,000
Accrued income	5,000	Investment in government bond	50,000
Cash at bank	35,600	Closing stock	60,000
Net profit for the year	94,100