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Question
From the following Balance Sheets of M/s Devendra Ltd., prepare a Comparative as well as Common-size Balance Sheet and comment upon the changes:
| BALANCE SHEETS OF DEVENDRA LTD | ||||
| as at 31st March, 2023 | ||||
| Particulars | Note No. |
31.3.2023 (₹) |
31.3.2022 (₹) |
|
| I. | EQUITY AND LIABILITIES | |||
| Shareholders’ Funds: | ||||
| Share Capital | 16,50,000 | 14,00,000 | ||
| Reserves and Surplus | 7,00,000 | 5,00,000 | ||
| Non-Current Liabilities | 2,55,000 | 3,00,000 | ||
| Current Liabilities | 6,45,000 | 4,25,000 | ||
| 32,50,000 | 26,25,000 | |||
| II. | ASSETS: | |||
| Non-Current Assets | 18,15,000 | 10,65,000 | ||
| Current Assets | 14,35,000 | 15,60,000 | ||
| 32,50,000 | 26,25,000 | |||
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Solution
| DEVENDRA LTD. | |||||
| COMPARATIVE BALANCE SHEETS | |||||
| as at 31st March 2023 and 2022 | |||||
| Particulars | Note No. |
2023 (₹) |
2022 (₹) |
Absolute Change (₹) (Increase or Decrease) |
% Increase or decrease (%) |
| 1 | 2 | 3 | 4 | 5 | |
| EQUITY AND LIABILITIES: | |||||
| Shareholders’ Funds: | |||||
| Share Capital | 16,50,000 | 14,00,000 | 2,50,000 | 17.86 | |
| Reserves and Surplus | 7,00,000 | 5,00,000 | 2,00,000 | 40.00 | |
| Non-Current Liabilities | 2,55,000 | 3,00,000 | (45,000) | (15.00) | |
| Current Liabilities | 6,45,000 | 4,25,000 | 2,20,000 | 51.76 | |
| 32,50,000 | 26,25,000 | 6,25,000 | 23.81 | ||
| ASSETS: | |||||
| Non-Current Assets | 18,15,000 | 10,65,000 | 7,50,000 | 70.42 | |
| Current Assets | 14,35,000 | 15,60,000 | (1,25,000) | (8.01) | |
| 32,50,000 | 26,25,000 | 6,25,000 | 23.81 | ||
Comments: The analysis of the above comparative balance sheets gives the following conclusions:
- Non-current assets have increased by ₹7,50,000, i.e, 70.42% increase.
- Purchase of Non-Current assets was financed partly by the issue of new shares for ₹2,50,000, partly by the increase of ₹2,00,000 in reserves, and partly by the decrease of ₹1,25,000 in current assets, and the balance has been arranged by delaying the payment of current liabilities.
- Share capital has increased by ₹2,50,000, i.e., 17.86% increase. It has made the financial position of the company strong.
- Reserves have increased by ₹2,00,000, i.e., 40% increase, which reflects the increase in profits. It has also strengthened the financial position of the company.
DEVENDRA LTD. COMPARATIVE BALANCE SHEET as at 31st March, 2023 and 2022:
| DEVENDRA LTD. | |||||
| COMMON BALANCE SHEETS | |||||
| as at 31.3.2023 and 31.3.2022 | |||||
| Particulars | Note No. |
Absolute Amounts | Percentage of Balance Sheet Total |
||
| 2023 | 2022 | 2023 | 2022 | ||
| EQUITY AND LIABILITIES: | |||||
| Shareholders’ Funds | 23,50,000 | 19,00,000 | 72.31 | 72.38 | |
| Non-Current Liabilities | 2,55,000 | 3,00,000 | 7.85 | 11.43 | |
| Current Liabilities | 6,45,000 | 4,25,000 | 19.84 | 16.19 | |
| 32,50,000 | 26,25,000 | 100 | 100 | ||
| ASSETS: | |||||
| Non-Current Assets | 18,15,000 | 10,65,000 | 55.85 | 40.57 | |
| Current Assets | 14,35,000 | 15,60,000 | 44.15 | 59.43 | |
| 32,50,000 | 26,25,000 | 100 | 100 | ||
Comments: In 2022, current assets comprised 59.43% of total assets. In 2023, these have decreased to 44.15%. On the other hand, Current liabilities have increased from 16.19% to 19.84%. Because of a decrease in the percentage of Current assets and an increase in the percentage of Current liabilities, the position of working Capital has deteriorated.
The percentage of Non-Current assets has increased from 40.57% to 55.85%. Long-term borrowings or shareholders’ funds should have financed the purchase of non-current assets, but the company has utilized working capital to purchase non-current assets, which is not a prudent policy.
DEVENDRA LTD COMMON SIZE BALANCE SHEET as at 31st March, 2022 and 2023:
