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BTEL 009 - Basics of Balance Sheet - Example

This document provides a detailed explanation of balance sheet concepts using a sample balance sheet. It includes calculations for current assets, current liabilities, net working capital, and various financial ratios. The document emphasizes the importance of understanding both gross and net values of fixed assets in balance sheet analysis.

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Ashish Kumar Gupta
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10 views3 pages

BTEL 009 - Basics of Balance Sheet - Example

This document provides a detailed explanation of balance sheet concepts using a sample balance sheet. It includes calculations for current assets, current liabilities, net working capital, and various financial ratios. The document emphasizes the importance of understanding both gross and net values of fixed assets in balance sheet analysis.

Uploaded by

Ashish Kumar Gupta
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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The Banking Tutor

Elementary Lessons
BTEL 009 11-08-2023

Basics of Balance Sheet - Example


In this Lesson, an attempt is made to explain concepts related to Balance Sheet
using a sample Balance Sheet.

A Simple Sample Balance Sheet is furnished hereunder to explain above concepts.

Liabilities Assets
Capital 300000 Land & Building 192150
General Reserves 55000 Plant & Machinery 128600
P & L Account (Credit 6750 Total Fixed Assets 265000
Balance) (after Depreciation)
Term Loan from Bank 100000 Goodwill 15000
Liability in OCC 38000 Pre-operative Expenses 15000
Creditors (for goods) 26000 Cash 250
Provision for Tax 9250 Receivables (Book debts) 125050
Dividend Proposed 15000 Stock (Inventory) 128200
Pre-paid expenses 1500
Total 550000 Total 550000

Other Information :

Net Sales : 15,00,000/-

Purchases : 10,50,000/-

Depreciation 55,750/-

From the above Sample Balance Sheet we have arrived at following:

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Current Assets (CA) = Cash + Receivables + Stock + Pre-paid Expenses
= 250 + 125050 + 128200 + 1500 = 255000

Quick Assets (QA)= Cash + Receivables = 250 + 125050 = 125300

Current Liabilities (CL) = OCC + Creditors + Provision for Tax + Dividend Proposed
= 38000 + 26000 + 9250 + 15000 = 88250

Current Ratio = CA / CL = 255000 / 88250 = 2.89 : 1

Quick Raio + QA / CL = 125300 / 88250 = 1.42 : 1

Net Working Capital = CA – CL = 255000 – 88250 = 166750

Current Liabilities other than Bank Borrowings (CLOBB ) = CL – Bank Borrowings


for WC

= 88250 – 38000 = 50250

Working Capital Gap (WCG) = CA – CLOBB = 255000 – 50250 = 204750

Net Worth = Capital + Reserves + Credit Balance in P&L Account = 361750

Intangible Assets = Good Will + Pre-operative Expenses = 30000

TNW = Net Worth – Intangible Assets = 361750 – 30000 – 331750

Debt Equity Ratio (DER) = Long Term Debt / TNW = 100000 / 331750 = 0.30 : 1

Stock Turnover Ratio = Net Sales / Stock = 11.70 (approximately 12 times)

Debtor Velocity Ratio = Debtors / Net Sales x 12 = 1 month

Creditor Velocity Ratio = Creditors / Purchases x 12 = 26000/1000000 x 12 = 0.3


month.

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Other way of arriving at NWC = Long Term Funds – Long Term Uses

Long Term Funds are also known as Long Term Sources (LTF or LTS)

LTS = Capital + Reserves + P&L Credit Balance + Term Loan


300000 + 55000 + 6750 + 100000 = 461750

LTU = Fixed Assets after Depreciation + Intangible Assets

FA after Depreciation = Land & Building + Plant & Machinery – Depreciation


192150 + 128600 – 55750 = 265000

LTU = 265000 + 30000 = 295000

NWC arrived at using Long Term Items = LTS – LTU = 461750 – 295000 = 166750.

Though arithmetically calculating NWC using CA-CL formula correct, as Margin


represents the borrower’s own funds, it is apt if we calculate NWC using Long Term
Items. (LT Sources - LT Uses).

In Balance Sheet, Though original value of Fixed Assets is furnished (this is known
as Gross Block), while computing Value of Assets, we take into account Value of
Fixed Assets after deducting Depreciation. This Depreciated Value of Fixed Assets
is known as Net Block .

In the above example, total of Land & Building (192150) and Plant & Machinery
(128600) is known as Gross Block (320750). If we deduct Depreciation (55750) from
Gross Block we get Net Block (265000) which is taken into account while computing
Balance Sheet.

Sekhar Pariti
+91 94406 41014

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