Question

Following are the balance sheet of Reddy Limited as on 31 March, 2011 and 2012.
$\begin{array}{cccccc}\text{Liabilities}& \text{2011 ( Rs)}& \text{2012 ( Rs)}& \text{Assets}& \text{2011 ( Rs)}& \text{2012 ( Rs)}\\ \text{Share Capital}& 2,400& 3,600& \text{Land and}& 1,620& 1,040\\ & & & \text{Buildings}& & \\ \text{Reserves and}& & & \text{Plant and}& 1,860& 4,716\\ \text{Surplus}& 1,872& 2,124& \text{Machinery}& & \\ \text{Debentures}& 300& 600& \text{Furniture and}& & \\ & & & \text{Fixtures}& 54& 108\\ \text{Long Term}& & & \text{Other Fixed}& & \\ \text{Debt}& 900& 1,530& \text{Assets}& 120& 180\\ \text{Bills Payable}& 1,530& 702& \text{Long Term}& & \\ & & & \text{Loans}& 276& 354\\ \text{Other Current}& & & \text{Cash and}& & \\ \text{Liabilities}& 42& 60& \text{Bank}& 708& 60\\ & & & \text{Balances}& & \\ & & & \text{Bill}& 1,254& 1,120\\ & & & \text{Receivable}& & \\ & & & \text{Stock}& 960& 780\\ & & & \text{Prepaid}& & \\ & & & \text{Expenses}& 18& 18\\ & & & \text{Other Current}& & \\ & & & \text{Assets}& 174& 240\\ & \underset{–}{\underset{–}{7,044}}& \underset{–}{\underset{–}{8,616}}& & \underset{–}{\underset{–}{7,044}}& \underset{–}{\underset{–}{8,616}}\end{array}$
Analyse the financial position of the company wih the help of the Common Size Balance Sheet.

Answer 1

$\text{Common Size Balance Sheet of Reddy Limited}\text{as on March 11, 2011 and 2012}\begin{array}{ccccc}\text{Particulars}& 2011& & 2012& \\ & \text{(Rs.)}& \%& (Rs.)& \%\\ hline\text{Fixed Assets}& & & & \\ \text{Land and Building}& 1,620& 23.00& 1,040& 12.08\\ \text{Plant an d Machinery}& 1,860& 26.41& 4,716& 54.73\\ \text{Furniture and Fixtures}& 54& 0.77& 108& 1.25\\ \text{Other Fixed Assets}& 120& 1.70& 180& 2.09\\ \text{Total Fixed Assets (A)}& \overline{\underset{–}{3,654}}& \overline{\underset{–}{51.88}}& \overline{\underset{–}{6,044}}& \overline{\underset{–}{70.15}}\\ \text{Investments (B)}& & & & \\ \text{Long Term Loan}& \overline{\underset{–}{276}}& \overline{\underset{–}{3.92}}& \overline{\underset{–}{354}}& \overline{\underset{–}{4.11}}\\ \text{Current Assets}& & & & \\ \text{Cash and Bank Balances}& 708& 10.05& 60& 0.70\\ \text{Bill Receivable}& 1,254& 17.80& 1,120& 13.00\\ \text{Stock}& 960& 13.63& 780& 9.05\\ \text{Prepaid Expenses}& 18& 0.26& 18& 0.21\\ \text{Other Current Assets}& 174& 2.47& 240& 2.78\\ \text{Total Current Assets(C)}& \overline{\underset{–}{3,114}}& \overline{\underset{–}{44.21}}& \overline{\underset{–}{2,218}}& \overline{\underset{–}{25.74}}\\ \text{Total Assets (A+ B+ C)}& \underset{–}{7,044}& \underset{–}{100.00}& \underset{–}{8,616}& \underset{–}{100.00}\\ \text{Current Liabilities}& & & & \\ \text{Bills Payable}& 1,530& 21.73& 702& 8.14\\ \text{Other Current Liabilities}& 42& 0.59& 60& 0.70\\ \text{Total Current Liabilities}& \overline{\underset{–}{1,572}}& \overline{\underset{–}{22.32}}& \overline{\underset{–}{762}}& \overline{\underset{–}{8.84}}\\ \text{Long Term External Liabilities}& & & & \\ \text{Debentures}& 300& 4.26& 600& 6.96\\ \text{Long Term Debt}& 900& 12.77& 1,530& 17.76\\ \text{Total Long Term External Liabilities}& \overline{\underset{–}{1,200}}& \overline{\underset{–}{17.03}}& \overline{\underset{–}{2,130}}& \overline{\underset{–}{24.72}}\\ \text{Share Holder Fund}& & & & \\ \text{Share Capital}& 2,400& 34.07& 3,600& 41.78\\ \text{Reserve and Surplus}& 1,872& 26.58& 2,124& 24.66\\ & \overline{4,272}& \overline{60.65}& \overline{5,724}& \overline{66.44}\\ \text{Total Liabilities}& \underset{–}{\underset{–}{7,044}}& \underset{–}{\underset{–}{100.00}}& \underset{–}{\underset{–}{8,616}}& \underset{–}{\underset{–}{100.00}}\end{array}$

Comments:
(i) Inspite of decrease in current asstes and current liabilities , the current ratio has improved
(ii) Decrease in cash and bank balance indicated that there will be delay in payments
(iii) Increase in fixed assets and share capital shows that assets are purchased with long-term sources of finance.