Finalization of balance sheet (Part - 2)

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 –

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

- 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 –

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

- 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”.

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

- 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.

- It will be represented in the Following manner.

CASH & CASH EQUIVALENTS

PROVISION FOR TAXATION –

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

- 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.

- 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.

- It could have been any other Amount.

- It will be represented by the Following entry –

                               P&L Account Dr.

                                     To Provision for Tax

PRIOR PERIOD EXPENSES -

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

- 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.

- Always remember the following two points –

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

-  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 –

REASON FOR DISALLOW –

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

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

Trade Receivables -

- 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.

- 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.”

- 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.

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

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

- It will be presented in the following manner -

SHARE CAPITAL –

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

- 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.

- 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