Question

The following are the Balance Sheets of Mohan Ltd., at the end of 2004 and 2005.

					Rs’000
Liabilities	2004	2005	Assets	2004	2005
Equity Share Capital	400	600	Land & buildings	270	170
Reserves & Surplus	312	354	Plant & Machinery	310	786
Debentures	50	100	Furniture & Fixtures	9	18
Long-term Loans	150	255	Other Fixed Assets	20	30
Accounts Payable	255	117	Loans and Advances	46	59
Other Current Liabilities	7	10	Cash and Bank	118	10
			Account Receivable	209	190
			Inventory	160	130
			Prepaid Expenses	3	3
			Other current Assets	29	40
	1,174	1,436		1,174	1,436

Prepare a Comparative Balance Sheet and study the financial position of the company.

Answer 1

Comparative Balance Sheet of Mohan Ltd.
Particulars		2004	2005	Absolute Increase (+) or Decrease (–)	Percentage Increase (+) or Decrease (–)
		Rs’(000)	Rs’(000)	Rs’(000)	%
Assets:
	Current Assets
	Cash and Bank	118	10	(–) 108	(–) 91.52
	Account Receivable	209	190	(–) 19	(–) 9.09
	Inventory	160	130	(–) 30	(–) 18.75
	Prepaid Expenses	3	3	–	–
	Loan and Advances	46	59	+ 13	+ 28.26
	Other current Assets	29	40	+ 11	+ 37.93
	Total Current Assets (A)	565	432	(–) 133	(–) 23.54
	Fixed Assets:
	Loan and Buildings	270	170	(–) 100	(–) 37.04
	Plant and Machinery	310	786	+ 476	+153.54
	Furniture and Fixtures	9	18	+ 9	+ 100.00
	Other Fixed Assets	20	30	+ 10	+ 50.00
	Total Fixed Assets (B)	609	1,004	+ 395	+ 64.86
	Total Assets (A+B)	1,174	1,436	+ 262	+ 22.32
Liabilities:
	Current Liabilities
	Account Payable	255	117	(–) 138	(–) 54.12
	Other Current Liabilities	7	10	+ 3	+ 42.86
	Total Current Liabilities (A)	262	127	(–) 135	(–) 51.53
	Debentures	50	100	+ 50	+ 100.00
	Long term Loan	150	255	+ 105	+ 70.00
	Total Long-term External Liabilities (B)	200	355	+ 155	+ 77.50
	Equity Share Capital	400	600	+ 200	+ 50.00
	Reserve and Surplus	312	354	+ 42	+ 13.46
	Shareholders Fund (C)	712	954	+ 242	+ 33.99
	Total Liabilities and Shareholder Fund (A+B+C)	1,174	1,436	+ 262	+ 22.32

Interpretation

The Current Assets and the Current Liabilities decreased by Rs 1,33,000 i.e. by 23.54%, Rs 1,35,000 i.e. by 51.53% respectively. Despite the decrease in the Current Assets and the decrease in the Current Liabilities, the Current Ratio has improved.

1) Reduction in Cash and Bank by 91.52% shows steep decrease in liquidity. Such decrease in liquidity may pose threat to the smooth flow of operations and consequently delays in the settlement of debts.

2) The Comparative Balance Sheet of the company reveals that in the year 2005, there has been an increase in the Fixed Assets, Equity Share Capital, Long-term External Liabilities have increased by Rs 3,95,000 (i.e. by 64.86%), Rs 2,00,000 (i.e. by 50%) and by Rs 1,55,000 (i.e. by 77.5%) respectively. From this we can infer that the Fixed Assets have been purchased by using Long-term source of finance.

3) Reserve and Surplus of the company has increased by Rs 42,000 i.e. by 13.46%

Working Notes:-