From the following information prepare the balance sheet of Jam Ltd.:
| Particulars | Amount (₹) |
|---|---|
| Inventories | 7,00,000 |
| Equity Share Capital | 16,00,000 |
| Plant and Machinery | 8,00,000 |
| 8% Preference Share Capital | 6,00,000 |
| General Reserves | 6,00,000 |
| Bills payable | 1,50,000 |
| Provision for taxation | 2,50,000 |
| Land and Building | 16,00,000 |
| Non-current Investments | 10,00,000 |
| Cash at Bank | 5,00,000 |
| Creditors | 2,00,000 |
| 12% Debentures | 12,00,000 |
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Start your 14-day free trial to unlock the full solution →The Balance Sheet of Jam Ltd. is prepared by classifying items into Non-Current and Current Assets and Liabilities, with Shareholders’ Funds and Non-Current Liabilities on the equity and liabilities side. Total of Balance Sheet is ₹46,00,000.
The first step in preparing a company’s Balance Sheet is to understand the nature of each item. A Balance Sheet is not just a list of accounts — it is a classified statement that shows the financial position under specific heads as per Schedule III of the Companies Act. The key idea is to separate items based on time: what is due or usable within 12 months (current) versus beyond 12 months (non-current). Also, we must distinguish between owners’ funds (equity and preference share capital, reserves) and borrowed funds (debentures, loans).
Let us sort the given items:
-
Equity and Liabilities Side:
- Shareholders’ Funds: Equity Share Capital (₹16,00,000), 8% Preference Share Capital (₹6,00,000), General Reserves (₹6,00,000) — these belong to owners.
- Non-Current Liabilities: 12% Debentures (₹12,00,000) — long-term borrowings.
- Current Liabilities: Bills Payable (₹1,50,000), Creditors (₹2,00,000), Provision for Taxation (₹2,50,000) — these are short-term obligations.
-
Assets Side:
- Non-Current Assets: Land and Building (₹16,00,000), Plant and Machinery (₹8,00,000), Non-current Investments (₹10,00,000) — these are long-term assets.
- Current Assets: Inventories (₹7,00,000), Cash at Bank (₹5,00,000) — these are short-term assets.
Notice that Provision for Taxation is a current liability because it is typically payable within 12 months. Also, General Reserves is part of shareholders’ funds, not a liability.
Now, we need to present the Balance Sheet in the prescribed format. The total of both sides must match. Let us compute the totals:
Equity and Liabilities Total:
- Shareholders’ Funds: 16,00,000 + 6,00,000 + 6,00,000 = 28,00,000
- Non-Current Liabilities: 12,00,000
- Current Liabilities: 1,50,000 + 2,00,000 + 2,50,000 = 6,00,000
- Total: 28,00,000 + 12,00,000 + 6,00,000 = 46,00,000
Assets Total:
- Non-Current Assets: 16,00,000 + 8,00,000 + 10,00,000 = 34,00,000
- Current Assets: 7,00,000 + 5,00,000 = 12,00,000
- Total: 34,00,000 + 12,00,000 = 46,00,000
Both sides match at ₹46,00,000. This confirms the accuracy of classification.
A common mistake is to treat General Reserves as a liability or to misclassify Provision for Taxation as a non-current liability. Remember: reserves belong to shareholders, and tax provisions are almost always current unless the company has a deferred tax liability.
To quickly check if your classification is correct, add up all items on each side independently. If they don’t match, re-examine each item’s nature — especially items like investments (are they current or non-current?) and provisions.
Now, let us present the Balance Sheet in the standard format.
Balance Sheet of Jam Ltd. as at [Date not given — assume current date]
| Particulars | Note No. | Amount (₹) |
|---|---|---|
| EQUITY AND LIABILITIES | ||
| 1. Shareholders' Funds | ||
| (a) Share Capital | 1 | 22,00,000 |
| (b) Reserves and Surplus | 2 | 6,00,000 |
| 2. Non-Current Liabilities | ||
| (a) Long-term Borrowings | 3 | 12,00,000 |
| 3. Current Liabilities | ||
| (a) Trade Payables | 4 | 3,50,000 |
| (b) Other Current Liabilities (Provision for Taxation) | 5 | 2,50,000 |
| Total | 46,00,000 | |
| ASSETS | ||
| 1. Non-Current Assets | ||
| (a) Property, Plant and Equipment | 6 | 24,00,000 |
| (b) Non-current Investments | 10,00,000 | |
| 2. Current Assets | ||
| (a) Inventories | 7,00,000 | |
| (b) Cash and Cash Equivalents | 5,00,000 | |
| Total | 46,00,000 |
Notes to Accounts:
Note 1: Share Capital
| Particulars | Amount (₹) |
|---|---|
| Equity Share Capital | 16,00,000 |
| 8% Preference Share Capital | 6,00,000 |
| Total | 22,00,000 |
Note 2: Reserves and Surplus
| Particulars | Amount (₹) |
|---|---|
| General Reserves | 6,00,000 |
| Total | 6,00,000 |
Note 3: Long-term Borrowings
| Particulars | Amount (₹) | …
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