Discussion Question #5

Solution- Table 1.0 shows the order of current assets in terms of liquidity (Most to least)

Current Assets
1 Cash in hand
2 Bank Balance
3 Market Securities
4 Bills receivable
5 Trade receivables
6 Insurance Prepaid
7 Loans & Advances
8 Stock-in-trade
Table 1.0 Current Assets arranged in order of liquidity.

Numerical Problems #1
Solution-
a) Classification & Balance Sheet for Dilli Durbar Company as on March 31, 20X1:

Dilli Darbar
Balance Sheet
As on March 31st, 20X1:
Assets Amount Liabilities and Owner's Amount
Equity
Current Assets   Current Liabilities  
Cash in Hand ₹ 25,000.00 Salary Payable ₹ 15,000.00
Cash at Bank ₹ 35,000.00 Wages Payable ₹ 13,000.00
Raw Materials ₹ 15,000.00 Electricity Payable ₹ 2,000.00
Work in Progress ₹ 10,000.00 Bills Payable ₹ 60,000.00
Finished Goods ₹ 25,000.00 Sundry Creditors ₹ 1,10,000.00
Sundry Debtors ₹ 39,500.00 Proprietary Funds  
Insurance Charges ₹ 1,00,000.00 Capital ₹ 4,80,000.00
Marketable ₹ 60,000.00 Profit for the year ₹ 24,500.00
Securities
Fixed Assets      
Land ₹ 2,50,000.00    
Building ₹ 1,00,000.00    
Plant & Machinery ₹ 45,000.00    
Total  ₹ 7,04,500.00  Total ₹ 7,04,500.00
Table 2.0- Balance Sheet of Dilli Durbar as on 31 st March 20X1

b) Depreciation on Plant & Machinery at the rate of 10% per annum-

 Plant & Machinery value- Rs. 50,000/-
Depreciation- 10%
Value as on 31st March 20X1= Rs. 50,000-Rs.5000 =Rs. 45,000/- (Added as Fixed
Asset)
Rs.5,000/- deducted from Profit for the year from Liabilities and Owner’s Equity side.
Rs.30,000-Rs.5000= Rs.25,000/-

c) Rs.500 subtracted from Sundry Debtors since the customer has become insolvent, he
would not be able to pay up the amount. Rs 500/- would also be subtracted from
Profit of the year.
Sundry Debtors- Rs.40,000-Rs.500= Rs. 39,500/-
Profit- Rs. 25,000-Rs.500= Rs.24,500/-

d) Since the Insurance charges are paid on September 30, 20X0 it would be treated as
Prepaid Expense and therefore, it would fall within Current Assets.

MINI CASE#4
Solution:
Comparison of Nature of Assets, Liabilities and Owner’s Equity
Nature of Assets-
Non-current Assets: Tangible assets (e.g., property, plant, and equipment), intangible assets
(e.g., patents, trademarks), investments, deferred tax assets, and long-term loans and
advances & others.
Current Assets: Comprise current investments, inventories, trade receivables, cash and cash
equivalents, and short-term loans and advances & others.
Nature of Liabilities-
Non-current Liabilities: Consist of long-term borrowings, deferred tax liabilities, and other
long-term liabilities.
Current Liabilities: Include short-term borrowings, trade payables, other current liabilities,
and short-term provisions.
Nature of Owner's Equity-
Shareholder's Funds: Represent the capital contributed by shareholders (owners) and
reserves and surplus, which include retained earnings and other accumulated profits.

Similarities and Dissimilarities:

  All four companies have shareholder's funds, non-current liabilities, current
liabilities, and a total equity and liabilities section in their balance sheets.
 Colgate is the only company that does not have non-current borrowings (long-term
borrowings) in both years.
 Blue Dart Express Ltd. has a significant portion of non-current assets related to
tangible assets, indicating a substantial investment in property, plant, and
equipment.
Significant changes in individual items over the last year include-
 increases in reserves and surplus, non-current investments, and cash and cash
equivalents for Infosys;
 a decrease in long-term borrowings and an increase in short-term borrowings for
Raymond Limited;
 an increase in reserves and surplus and a decrease in short-term provisions for Blue
Dart Express Ltd.;
 and an increase in reserves and surplus and cash and cash equivalents for Colgate.

(a) Summarized Balance Sheet Equation for Each Company:

1) Infosys:
2019: Total Equity and Liabilities = 847.38 Crores = Shareholder's Funds (650.06) +
Non-current Liabilities (10.94) + Current Liabilities (186.38)
2018: Total Equity and Liabilities = 798.90 Crores = Shareholder's Funds (649.23) +
Non-current Liabilities (8.61) + Current Liabilities (141.06)
2) Raymond Limited:
2019: Total Equity and Liabilities = 66.64 Crores = Shareholder's Funds (19.54) + Non-
current Liabilities (5.77) + Current Liabilities (41.34)
2018: Total Equity and Liabilities = 61.09 Crores = Shareholder's Funds (18.12) + Non-
current Liabilities (8.52) + Current Liabilities (34.44)
3) Blue Dart Express Ltd:
2019: Total Equity and Liabilities = 18.11 Crores = Shareholder's Funds (5.78) + Non-
current Liabilities (4.47) + Current Liabilities (7.87)
2018: Total Equity and Liabilities = 15.03 Crores = Shareholder's Funds (5.32) + Non-
current Liabilities (3.29) + Current Liabilities (6.41)
4) Colgate:
2019: Total Equity and Liabilities = 26.26 Crores = Shareholder's Funds (14.47) + Non-
current Liabilities (1.29) + Current Liabilities (10.51)
 2018: Total Equity and Liabilities = 25.64 Crores = Shareholder's Funds (15.25) + Non-
current Liabilities (0.56) + Current Liabilities (9.83)
Significant Variations:
Across Companies: The total equity and liabilities vary significantly across companies, with
Infosys having the highest total equity and liabilities, followed by Raymond Limited, Colgate,
and Blue Dart Express Ltd.
Over Time: There is an increase in total equity and liabilities for all companies between 2018
and 2019, indicating overall growth in their financial position.

(b) Biggest Changes in Specific Items on the Balance Sheet for All Companies:
Infosys: Significant increases in reserves and surplus (from 638.35 to 628.36) and cash and
cash equivalents (from 198.18 to 195.68) between 2018 and 2019.
Raymond Limited: Major increase in short-term borrowings (from 11.50 to 17.32) and trade
payables (from 11.26 to 13.52) between 2018 and 2019.
Blue Dart Express Ltd: Notable increase in short-term borrowings (from 0.97 to 0.71) and
trade payables (from 3.68 to 4.34) between 2018 and 2019.
Colgate: Significant increase in trade payables (from 6.20 to 6.13) between 2018 and 2019.

Rationale:
 The increases in reserves and surplus for Infosys and Colgate might be due to higher
retained earnings or profits generated during the year.
 The rise in short-term borrowings and trade payables for Raymond Limited and Blue
Dart Express Ltd could be related to working capital requirements and increased
business activities.

(c) Most Stable Company during a Sudden Economic Recession: From a balance sheet
perspective, Colgate would likely be the most stable company during a sudden economic
recession. Colgate has a relatively lower proportion of non-current liabilities (long-term
borrowings and deferred tax liabilities) compared to the other companies. It also has a
significant portion of its equity in reserves and surplus, indicating accumulated profits over
time. In times of economic downturn, having a lower debt burden and higher retained
earnings can provide financial stability and resilience to face challenges.
(d) Company Better Able to Capitalize Quickly on Economic Growth: Based on the balance
sheet perspective, Infosys would be better positioned to capitalize quickly on a phase of
economic growth. Infosys has a substantial amount of reserves and surplus, indicating
retained earnings and accumulated profits. It also has a higher proportion of non-current
assets, such as tangible assets and intangible assets. These factors suggest that the company
has the financial resources and assets to invest in growth opportunities and expand its
operations during a phase of economic growth. Additionally, its significant cash and cash
equivalents provide liquidity to support business expansion and investment projects.

Mini Case #6
Solution-
Last three digits of Roll No is and Date of birth is
Z=, Y=
Assets Amount Liabilities Amount
Cash ₹ 6,91,000.00 Capital (Added by Ram Kumar) ₹ 6,91,000.00
Add: Cash (Loan from Champa) ₹ 2,000.00 Loans (taken from Champa) ₹ 2,000.00
Inventory Red Chilli (From Pappu- Sundry creditors (Laddu- Inventory on
3*346*20) ₹ 20,760.00 Credit) ₹ 41,520.00
Subtract- Cash (Given to Pappu for Red Subtract- From Profit (Expense- Money
Chilli Inventory) ₹ -20,760.00 Spent for promotion) ₹ -1,000.00
Inventory Green Chilli (From Laddu- Subtact- From Profit (Expense- 1kg Red &
346*3*40) ₹ 41,520.00 Green Chilli given to Mother-in-Law) ₹ -349.00
Subtract- Loss made from Selling Red
Subtract- Cash (Spent for Promotion) ₹ -1,000.00 Chilli (16608-7200) ₹ -9,408.00
Subtract- From Inventory (1 Kg of Red & Add- Profit made from Selling Green Chilli
Green Chilly given to mother-in-law) ₹ -349.00 (1245600-37368) ₹ 12,08,232.00

Add- Cash (By Selling Red Chilli) ₹ 7,200.00 Subtract- From Profit (Gift given to Wife) ₹ -349.00
Subtract- From Inventory Red Chilli (Sold) ₹ -16,608.00 Salary Payable to the employee Raju ₹ 1,000.00
Subtract- From Profit (Expense for paying
Add- Cash (By Selling Green Chilli) ₹ 12,45,600.00 salary to the employee) ₹ -1,000.00
Add- In Sundry creditors (Furniture
bought on Credit from Arunachal Green
Subtract- From Inventory Green Chilli (Sold) ₹ -37,368.00 Plywood) ₹ 300.00
Subtract-From Inventory (Gift given to Subtract- From Profit (Rent for 30 days-
Wife) ₹ -349.00 Rs.346*30) ₹ -10,380.00

Interest Payable to Champa on the Loan

Furniture (Fixed Asset bought on Credit) ₹ 300.00 (12% P.A. i.e. 1% per month on Rs. 2000) ₹ 20.00
Subtract- Interest paid to Champa from
Advance Rent ( 34600-346*30) ₹ 24,220.00 Profit ₹ -20.00
Subtract- Cash given for Advance Rent ₹ -34,600.00
Total ₹ 19,21,566.00 Total ₹ 19,21,566.00

Working Table 4.1

Working on Tax Amount
Profit before Tax (After subtracting and
deducting expenses and losses) ₹ 11,85,726.00
Provision for Tax (40% on Profit before tax)
(to be added as Current Liability in Balance
Sheet) ₹ 4,74,290.40
Net Profit (to be added in Profit Side in
Balance Sheet) ₹ 7,11,435.60

Working Table 4.2

Assets Amount (In Rupees) Liabilities and Amount (In Rupees)

Owner’s Equity
Cash 1889440.00 Payables 42840.00
Inventory 7606.00 Loan 2000.00
Prepaid Rent 24220.00 Provisions 474290.40
Total Current Assts 1921266.00 Total Liabilities 519130.40
Capital 691000.00
Fixed Assets 300.00 Profit 711435.60
 Total Fixed Assets 300.00 Total Owner’s Equity 1402435.60
Total Assets 1921566.00 Total Liabilities and 1921566.00
Owner’s Equity
Based on Table 4.1 & 4.2, the Balance Sheet as on June 30th, as given in the question, is filled
as follows-
Table 4.3 Ram Traders Balance Sheet as on June 30 th