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Finalization of Balance Sheet (Part - II)

SANYAM ARORA  
on 10 October 2012

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Greetings of  the Day  to all  the members of CCI  Family.

So as promised I am back with the Part – 2 of my series i.e. “Finalization of Balance Sheet”.

The link for my previous Article is given below - “Finalization of Balance Sheet”

INTRODUCTION –

1. First of all in this Article I will be taking up the queries raised by all of you relating to my previous Article.

2. And to add on will be discussing about some more issues arising while finalizing the B/Sheet.

SCOPE –

· Queries in Relation to “Cash & Cash Equivalents” & “Provision for Taxation”

· Trade Receivables

· Prior Period Items

· Share Capital

FINALIZATION OF BALANCE SHEET (PART – 2)

FIXED DEPOSITS –

1. In the previous Article I saw many queries as well as suggestions in relation to Fixed Deposits.

2. Many suggested that if the maturity is between 3 – 12 months, then it should be shown under the Head “Cash & Cash Equivalents” Otherwise under “Non - Current Assets”.

3. As I have said in the previous Article also this point will create confusion, so it should be discussed.

4. The Answer to the above query is it will be shown under the Head “Cash & Cash Equivalents” even if the maturity is above 3- 12 Months or above 1 Year.

5. It will be represented in the Following manner.

CASH & CASH EQUIVALENTS

PARTICULARS

AMOUNT

CASH

Rs.1,00,000

BANK BALANCE WITH XYZ BANK

Rs.50,0000

FIXED DEPOSIT WITH ABC BANK

-          3 – 12 MONTHS

10,00,0000

-          MORE THAN 12 MONTHS

15,00,0000

PROVISION FOR TAXATION –

1. In the previous Article what I observed was students getting confused that How I have made the Provision of Rs.1, 70,000.

2. So to bring more clarity to the concept i will like to tell all of you that Provisions are made on the Basis of an estimate & not accurately.

·3. So as In the F.Y 2011-12 our Current Liability came Rs.1,50,000, so just on the basis of an estimate we made a Provision of Rs.1,50,000.

4. It could have been any other Amount.

5. It will be represented by the Following entry –

a. P&L Account Dr.

b. To Provision for Tax

PRIOR PERIOD ITEMS –

1. First of all let’s understand the meaning of the term.

2. Prior period expenses are those expenses which arise in the current period as a result of errors or omissions in the preparation of one or more Financial Statements.

3. Always remember the following two points –

a. A separate disclosure should be given at the Foot Note of P&L Account.

b. And what I have noticed is students while preparing Computations forgets to disallow the Prior Period Expenses.

So it will be represented in the following manner –

COMPUTATION OF INCOME –

INCOME FROM BUSINESS

590544.63

ADD :

DEPRECIATION AS PER CO.’S ACT

25043

PRIOR PERIOD EXPENSES

15876

LESS :

DEPRECIATION AS PER IT ACT

18765

TAXABLE INCOME

REASON FOR DISALLOW –

1. The logic is very clear, prior period expenses will be allowed in the year to which they pertain & they violate the provision of Accrual.

2. They will be allowed in the year to which they pertain.

Trade Receivables -

1. A receivable should be classified as trade receivable if it is in respect of the amount due on account of goods sold or services rendered in the normal course of business.

2. The Old Schedule VI required separate presentation of debtors outstanding for a period exceeding six months based on date on which the bill/invoice was raised whereas, the Revised Schedule VI requires separate disclosure of “trade receivables outstanding for a period Exceeding six months from the date the bill/invoice is due for payment.”

3. For Example if ABC Pvt. Ltd. sells good to Mr. X on credit for Rs.2500000 on 01.07.2011. But the actual date of payment was 01.08.2011. So as per Revised Schedule VI we will calculate the months starting from 01.08.2011 & not from 01.07.2011.

4. So in the above example the said amount will be classified under the Head “More than 6 Months”.

5. Also many of us forget to show the sub classification of Trade Receivables i.e. Doubtful, Considered good & Unsecured Considered Good.

6. It will be presented in the following manner -

TRADE RECEIVABLE (CONSIDERED GOOD OR DOUBTFUL)

AMOUNT

EXCEEDING 6 MONTHSS

Rs.5,00,000

OTHERS

Rs.10,00,887

SHARE CAPITAL –

1. In making the note of Share Capital we often forget to disclose the following discloser which can affect the Finalization Process.

2. Number of shares held by each shareholder holding more than 5% shares now needs to be disclosed. Such information will be based on shares held as on the balance sheet date.

3. Also reconciliation needs to be shown for Shares outstanding at the Beginning with at the End of the Year.

So it brings end to my Article.

I hope that you all will find it useful.

Thanks & Regards

Sanyam Arora




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