Balance Sheet - Non-Currrent Area - Current Area - Working Capital |
Balance Sheet - Non-Currrent Area - Current Area - Working Capital |
Balance Sheet = Non-Current Area + Current Area |
For this purpose, classification of assets and liabilities is based on time i.e. the life span of the assets and liabilities. An example balance sheet with the two areas marked.
Balance Sheet of M/s Free Flow Fluids as on 30th June 2007 | |||
---|---|---|---|
Liabilities | Amount | Assets | Amount |
EQUITY SHARE CAPITAL PREFERENCE SHARE CAPITAL RESERVES a) P/L Appropriation a/c LONG TERM LIABILITIES (Retained Earnings) b) Share Premium c) Shares Forfeited d) Capital Redemption Reserve e) General Reserve (1) Loans from Banks (2) Debentures (3) Fixed Deposits Collected CURRENT LIABILITIES AND PROVISIONS (1) Sundry Creditors (2) Bills Payable (3) Bank Overdraft (4) Outstanding Expenses (5) Unclaimed Dividends (6) Pre-received Incomes (7) Provision for Taxation (8) Provision for Dividends | 15,00,000 9,00,000 29,57,000 14,00,000 1,74,000 12,00,000 20,00,000 54,00,000 25,00,000 14,62,000 13,00,000 12,00,000 5,00,000 5,00,000 20,000 2,23,000 3,00,000 4,00,000 | FIXED ASSETS Goodwill at cost ACCUMULATED LOSSES Land and Buildings Plant and Machinery Furniture and Fittings Loose Tools Patents, Trade Marks, Copyrights Investments Miscellaneous Expenses Goodwill (Self Generated) Patents, Trade Marks, Copyrights (unrealisable) Discount on issue of shares and Debentures CURRENT ASSETS A. LIQUID ASSETS (1) Cash balance on hand B. OTHER CURRENT ASSETS (2) Bank Balance (3) Bills Receivable (4) Sundry Debtors Less: Reserve for (5) Advances recoverable in cash Doubtful Debts or for value to be received (1) Stocks/Inventories (2) Prepaid Expenses (3) Incomes Receivable (4) Short Term Investments | 8,00,000 62,00,000 35,00,000 5,00,000 4,26,000 18,00,000 24,00,000 2,40,000 2,00,000 1,00,000 2,10,000 1,17,000 – 15,00,000 38,20,000 3,83,000 6,00,000 3,80,000 1,60,000 5,00,000 |
2,38,36,000 | 2,38,36,000 |
Thus, the current area of the balance sheet is made up of the current assets on the assets side and the current liabilities on the liabilities side.
Balance Sheet of M/s Free Flow Fluids as on 30th June 2007 | |||
---|---|---|---|
Liabilities | Amount | Assets | Amount |
... CURRENT LIABILITIES AND PROVISIONS (1) Sundry Creditors (2) Bills Payable (3) Bank Overdraft (4) Outstanding Expenses (5) Unclaimed Dividends (6) Pre received Incomes (7) Provision for Taxation (8) Provision for Dividends | ... 13,00,000 12,00,000 5,00,000 5,00,000 20,000 2,23,000 3,00,000 4,00,000 | ... CURRENT ASSETS A. LIQUID ASSETS (1) Cash balance on hand B. OTHER CURRENT ASSETS (2) Bank Balance (3) Bills Receivable (4) Sundry Debtors Less: Reserve for (5) Advances recoverable in cash Doubtful Debts or for value to be received (1) Stocks/Inventories (2) Prepaid Expenses (3) Incomes Receivable (4) Short Term Investments | ... 1,17,000 – 15,00,000 38,20,000 3,83,000 6,00,000 3,80,000 1,60,000 5,00,000 |
2,38,36,000 | 2,38,36,000 |
From the above balance sheet,
With a few exclusions, we can also say that assets other than current assets are non-current assets and liabilities other than current liabilities are non-current liabilities.
Thus, the non-current area of the balance sheet is made up of the non-current assets on the assets side and the non-current liabilities on the liabilities side.
Balance Sheet of M/s Free Flow Fluids as on 30th June 2007 | |||
---|---|---|---|
Liabilities | Amount | Assets | Amount |
EQUITY SHARE CAPITAL ... PREFERENCE SHARE CAPITAL RESERVES a) P/L Appropriation a/c LONG TERM LIABILITIES (Retained Earnings) b) Share Premium c) Shares Forfeited d) Capital Redemption Reserve e) General Reserve (1) Loans from Banks (2) Debentures (3) Fixed Deposits Collected | 15,00,000 1,93,93,000 ... 9,00,000 29,57,000 14,00,000 1,74,000 12,00,000 20,00,000 54,00,000 25,00,000 14,62,000 | FIXED ASSETS ... Goodwill at cost ACCUMULATED LOSSES Land and Buildings Plant and Machinery Furniture and Fittings Loose Tools Patents, Trade Marks, Copyrights Investments Miscellaneous Expenses Goodwill (Self Generated) Patents, Trade Marks, Copyrights (unrealisable) Discount on issue of shares and Debentures | 8,00,000 62,00,000 35,00,000 5,00,000 4,26,000 18,00,000 24,00,000 2,40,000 2,00,000 1,00,000 2,10,000 |
2,38,36,000 | 2,38,36,000 |
From the above balance sheet,
Working Capital : Residue of Current Area |
Balance Sheet of M/s Free Flow Fluids as on 30th June 2007 | |||
---|---|---|---|
Liabilities | Amount | Assets | Amount |
... CURRENT LIABILITIES AND PROVISIONS (1) Sundry Creditors (2) Bills Payable (3) Bank Overdraft (4) Outstanding Expenses (5) Unclaimed Dividends (6) Pre received Incomes (7) Provision for Taxation (8) Provision for Dividends | ... 13,00,000 12,00,000 5,00,000 5,00,000 20,000 2,23,000 3,00,000 4,00,000 | ... CURRENT ASSETS A. LIQUID ASSETS (1) Cash balance on hand B. OTHER CURRENT ASSETS (2) Bank Balance (3) Bills Receivable (4) Sundry Debtors Less: Reserve for (5) Advances recoverable in cash Doubtful Debts or for value to be received (1) Stocks/Inventories (2) Prepaid Expenses (3) Incomes Receivable (4) Short Term Investments | ... 1,17,000 – 15,00,000 38,20,000 3,83,000 6,00,000 3,80,000 1,60,000 5,00,000 |
2,38,36,000 | 2,38,36,000 |
From the above balance sheet,
Working Capital | = | Current Assets - Current Liabilities |
= | 72,60,000 - 44,43,000 | |
= | 28,17,000 |
A negative value for working capital indicates that the aggregate of current liabilities is greater than the aggregate of current assets.
Assuming current assets > current liabilities, all Current assets cannot be financed by current liabilities. Current assets in excess of current liabilities (i.e. current assets which are not capable of being financed by current liabilities) are financed by non-current liabilities.
Since Current assets in excess of current liabilities is working capital, we say
Working capital is
Working Capital : Residue of Non-Current Area |
Balance Sheet of M/s Free Flow Fluids as on 30th June 2007 | |||
---|---|---|---|
Liabilities | Amount | Assets | Amount |
EQUITY SHARE CAPITAL ... PREFERENCE SHARE CAPITAL RESERVES a) P/L Appropriation a/c LONG TERM LIABILITIES (Retained Earnings) b) Share Premium c) Shares Forfeited d) Capital Redemption Reserve e) General Reserve (1) Loans from Banks (2) Debentures (3) Fixed Deposits Collected | 15,00,000 1,93,93,000 ... 9,00,000 29,57,000 14,00,000 1,74,000 12,00,000 20,00,000 54,00,000 25,00,000 14,62,000 | FIXED ASSETS ... Goodwill at cost ACCUMULATED LOSSES Land and Buildings Plant and Machinery Furniture and Fittings Loose Tools Patents, Trade Marks, Copyrights Investments Miscellaneous Expenses Goodwill (Self Generated) Patents, Trade Marks, Copyrights (unrealisable) Discount on issue of shares and Debentures | 8,00,000 62,00,000 35,00,000 5,00,000 4,26,000 18,00,000 24,00,000 2,40,000 2,00,000 1,00,000 2,10,000 |
2,38,36,000 | 2,38,36,000 |
The difference between the aggregate values of non-current liabilities and non-current assets is working capital.
From the above balance sheet,
Working Capital | = | Non-Current Liabilities - Non-Current Assets |
= | 1,93,93,000 - 1,65,76,000 | |
= | 28,17,000 |
A negative value for working capital indicates that the aggregate of non-current assets is greater than the aggregate of non-current liabilities.
Assuming current assets > current liabilities, all Current assets cannot be financed by current liabilities. Current assets in excess of current liabilities (i.e. current assets which are not capable of being financed by current liabilities) are financed by non-current liabilities.
Since Current assets in excess of current liabilities is working capital, we say
Working capital is
Assuming non-current liabilities > non-current assets, Non-Current liabilities support non-current assets to the extent they are available and only the surplus non-current liabilities support current assets.
Since non-Current liabilities in excess of non-current assets represent working capital, we say
Working capital is
Working Capital belongs to both Current area as well as Non - Current area |
Working capital as a residue of the Non-Current area leads us to the understanding that it is Non-Current natured. Excess of Non-Current liabilities over Non-Current assets implies part of the Non-Current liabilities (capital) is what is remaining and thus it can be said that working capital is Non-Current natured.
Working capital is thus dual natured. It is also capital and in this regard it is to be considered as long term capital belonging to the non-current area. Every rupee of a liability is supported by a rupee of an asset and the assets that support working capital are current natured.
... 234 ... |