Question

Prepare a common size Balance Sheet and comment on the financial position of G Ltd. and L Ltd. The Balance Sheet of G Ltd. and L Ltd. as at 31.03.2018 are given below :

$\begin{array}{cccc}\text{Particulars}& \text{Note}& \text{G.Ltd}& \text{L. Ltd}\\ & \text{No.}& & \\ \text{I. EQUITY AND LIABILITIES:}& & \text{Rs}& \text{Rs}\\ \text{(1) Shareholder's Funds}& & 3,00,000& 4,00,000\\ \text{(2) Non-Current Liabilities}& & 2,00,000& 3,00,000\\ \text{(3) Current Liabilities}& & \underset{–}{1,00,000}& \underset{–}{50,000}\\ \text{TOTAL}& & \underset{–}{\underset{–}{6,00,000}}& \underset{–}{\underset{–}{7,50,000}}\\ \text{II. ASSETS:}& & & \\ \text{(1) Non-Current Assets}& & & \\ \text{(i) Tangible Assets}& & 2,50,000& 3,00,000\\ \text{(ii) Intangible Assets}& & 1,50,000& 1,00,000\\ \text{(2) Current Assets}& & 2,00,000& 3,50,000\\ \text{TOTAL}& & \overline{\underset{–}{\underset{–}{6,00,000}}}& \overline{\underset{–}{\underset{–}{7,50,000}}}\end{array}$

Answer 1

COMMON SIZE BALANCE SHEET as at 31.03.2018

Comments: The following difference may be observed in the financial position of both the companies on the basis of above common size balance sheets of G Ltd. and L Ltd.:
1) The short term financial poisiton of L Ltd. is definitely better as compared to G Ltd. The current Liabilites of L Ltd. are 6.67% of total funds invested whereas a proportion of current assets in these funds is 46.67%. On the other hand, the curent liabilites of G Ltd. are 16.67% of total funds and current assets are 33.33% of these fuds. Thus, trade payables are more secuerd in L Ltd.

2)The long- term financial position also of L Ltd. is better than G Ltd. because Shareholder's Funds are 53.33% of total funds in case of L Ltd. while it is 50% in G Ltd.

3) G Ltd. has invested more ( 66.67%) in non-current assets as compared ti 53.33% by Ltd.