Net worth calculation

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parteekjain (Querist)

23 December 2011 I AM JUST CONFUSED THAT WHY FIXED ASSETS ARE REDUCED FROM THE NET WORTH WHILE ITS CALCULATION AS PER DR. L.C. GUPTA COMMITTEE REPORT.

CAN ANY BODY PLEASE GUIDE ME. ITS URGENT

THANKS IN ADVANCE.

CA PARAS BAFNA

CA PARAS BAFNA (Expert)

15 January 2012 Net Worth = Assets -Liabilities (Except Share Capital and Reserves.)

So the Result of the above will be Share Capital + Reserves.
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The method of computation of Net worth as prescribed by Dr. L.C. Gupta Committee on Derivatives for clearing members is as follows:

Capital + Free Reserves

Less: Non-allowable assets viz.,

(a) Fixed Assets

(b) Pledged Securities

(c) Member’s card

(d) Non-allowable securities (unlisted securities),

(e) Bad deliveries

(f) Doubtful Debts and Advances*

(g) Prepaid expenses, losses

(h) Intangible Assets

(i) 30% of Marketable securities

.
So the method is specifically applicable to the prescribed clearing members only. According to the norms item (a) to (i) are not considered as asset or even you can say are not worth to consider as an asset and that's why the same are excluded.
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Suppose your capital a/c shows Balance of Rs. 5.00 lac. Against this only Liability side item you have Debtors of Rs 4.00 lac ans cash of Rs 5.00 lac.
Your net worth is 5.00 lac.
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Now consider if out of 4.00 lac debtors 1.00 lac is Bad , Your Net Worth is 5-1=4.
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parteekjain

parteekjain (Querist)

24 January 2012 THANK U A LOT SIR.

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