Example
Consider the following balance sheet of a company on 31.3.1992 and the additional information for the year till 3 1.3.1993 as given hereunder.
Additional Information on transactions between 1.4.1992 and 31.3.1993 :
(a) Sold investments costing Rs. 3.00,000 (at cost) for Rs. 3,80,000 on credit.
(b) Sold inventories costing Rs. 2,50,000 (at cost) for Rs. 2,90.000 in cash.
(c) Purchased fixed assets for Rs. 1,00.000 in cash on which depreciation of Rs. 20,000 was set off in the year.
(d) Purchased fixed assets for Rs. 2,00,000, payable after 3 years, the loan being secured against property. Rs. 30,000 was set off as depreciation in the year.
(e) Obtained additional unsecured loan of Rs. 2,00,000 in cash.
(f) Collected book debts in cash Rs. 3,00,000.
Deterpine the altered position of the BS and in WC.
Solution
(a) Working capital, initially = CA - CL = 21,00,000 - 12,00,000 = Rs. 9,00,000.
[Verifiable also as = NCL - NCA = 37,00,000 - 28,00,000 = Rs. 9,00,000.f
(b) For working out BS as on 3 1.3.1993, let the effects from transactions in the additional information be listed.
(1) Investment at cost reduces to Rs. 7,00,000 and book debts increase to Rs. 11,80,000. Also, see S1. No. (7) below.
(2) Inventories at cost reduces to Rs. 7,50,000 and Bank balance (and cash) increases to Rs. 5,90,000. Also see S1. No. (7) below.
(3) Gross Fixed Assets increases to Rs. 25,00,000; cash reduces to Rs. 4,90,000, depreciation increases to Rs. 6,20,000 and net at fixed assets comes to Rs. 18,80,000. Also see at S1. No. (7) below.
(4) Gross Fixed Assets increases to Rs. 27,00,000; long-term secured loan increases to Rs. 10,00,000; depreciation increases to Rs. 650.000; and the net at Fixed Assets comes to Rs. 20,50,000. Also see S1. No. (7) below.
(5) Long-term unsecured loans increases to Rs. 7,00,000 and Book debts increases to Rs. 13,80,000.
(6) Book debts decrease to Rs. 10,80,000 and cash increases to Rs. 7,90,000.
(7) Surplus increases by Rs. 80,000 by (1); increases by Rs. 40,000 by (2);decreases by Rs. 20,000 by (3); decreases by Rs. 30,000 by (4). The net change in surplus is Rs. 70,000 increase.
The BS at the end of the year is now prepared.
Inferences
(a) End-of-year WC = Rs. 14,20,000, i.e. increase of Rs. 5,20,000. Percentage of profits is getting reduced.(b) Though inventories: have reduced, yet such a large increase in CA. is not advisable. Percentage of pi,)htb is genrng reduced. Efforts must be taken to reduce book debts also much of the Bank Balan~e a ~ cash d can be put into "Deposits", or to clear up CL, or eken to rcnegotiare long-term secured loans as a first preference and then long-term unsecured loans ;is a second preference. The ceduction in Investment (at cost) read with increase in Rank Balance and Cash indicates the need for better management.
Consider the following balance sheet of a company on 31.3.1992 and the additional information for the year till 3 1.3.1993 as given hereunder.
Additional Information on transactions between 1.4.1992 and 31.3.1993 :
(a) Sold investments costing Rs. 3.00,000 (at cost) for Rs. 3,80,000 on credit.
(b) Sold inventories costing Rs. 2,50,000 (at cost) for Rs. 2,90.000 in cash.
(c) Purchased fixed assets for Rs. 1,00.000 in cash on which depreciation of Rs. 20,000 was set off in the year.
(d) Purchased fixed assets for Rs. 2,00,000, payable after 3 years, the loan being secured against property. Rs. 30,000 was set off as depreciation in the year.
(e) Obtained additional unsecured loan of Rs. 2,00,000 in cash.
(f) Collected book debts in cash Rs. 3,00,000.
Deterpine the altered position of the BS and in WC.
Solution
(a) Working capital, initially = CA - CL = 21,00,000 - 12,00,000 = Rs. 9,00,000.
[Verifiable also as = NCL - NCA = 37,00,000 - 28,00,000 = Rs. 9,00,000.f
(b) For working out BS as on 3 1.3.1993, let the effects from transactions in the additional information be listed.
(1) Investment at cost reduces to Rs. 7,00,000 and book debts increase to Rs. 11,80,000. Also, see S1. No. (7) below.
(2) Inventories at cost reduces to Rs. 7,50,000 and Bank balance (and cash) increases to Rs. 5,90,000. Also see S1. No. (7) below.
(3) Gross Fixed Assets increases to Rs. 25,00,000; cash reduces to Rs. 4,90,000, depreciation increases to Rs. 6,20,000 and net at fixed assets comes to Rs. 18,80,000. Also see at S1. No. (7) below.
(4) Gross Fixed Assets increases to Rs. 27,00,000; long-term secured loan increases to Rs. 10,00,000; depreciation increases to Rs. 650.000; and the net at Fixed Assets comes to Rs. 20,50,000. Also see S1. No. (7) below.
(5) Long-term unsecured loans increases to Rs. 7,00,000 and Book debts increases to Rs. 13,80,000.
(6) Book debts decrease to Rs. 10,80,000 and cash increases to Rs. 7,90,000.
(7) Surplus increases by Rs. 80,000 by (1); increases by Rs. 40,000 by (2);decreases by Rs. 20,000 by (3); decreases by Rs. 30,000 by (4). The net change in surplus is Rs. 70,000 increase.
The BS at the end of the year is now prepared.
Inferences
(a) End-of-year WC = Rs. 14,20,000, i.e. increase of Rs. 5,20,000. Percentage of profits is getting reduced.(b) Though inventories: have reduced, yet such a large increase in CA. is not advisable. Percentage of pi,)htb is genrng reduced. Efforts must be taken to reduce book debts also much of the Bank Balan~e a ~ cash d can be put into "Deposits", or to clear up CL, or eken to rcnegotiare long-term secured loans as a first preference and then long-term unsecured loans ;is a second preference. The ceduction in Investment (at cost) read with increase in Rank Balance and Cash indicates the need for better management.
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