Table 6 Columnar form of balance sheet

Balance sheet as at.................

£000 £000 £000

ASSETS EMPLOYED

FIXED ASSETS Cost Deprec. Net

Freehold premises 4000 1000 3000

Leasehold premises 1000 370 630

Plant and machinery 5000 2355 2645

Motor vehicles 970 200 770

Investments 10970 3925 7045

CURRENT ASSETS

Stock (inventories) 5500

Debtors and prepayments 1500

Marketable (liquid) securities 500

Bank balance and cash 100

Deduct

CURRENT LIABILITIES

Creditors 1754

Tax and prepayments in coming year 500

Bank overdraft 451

Proposed dividends 335

NET CURRENT ASSETS 3040

NET ASSETS EMPLOYED 4560

FINANCED BY:

SHARE CAPITAL

Ordinary shares 5300

Preference shares 2100

RESERVES 2500

LOAN CAPITAL 2500

Debentures 12400

The way in which the balance sheet in Table 5 is presented is called the T form. It is still in use but most large businesses now use the columnar form, as shown in Table 6. This has the major advantage of distinguishing clearly between the sources and use of funds and it is generally accepted as an easier form to interpret.

The balance sheet shows the position of a business at a given moment but it does not tell us how the business reached that position, the level of its sales and how the profit made had been divided between the various parties with a claim to it. For this information we need two other financial statements: the profit and loss account and the funds flow statement.

2. Comprehension check.

Working in pairs, answer the questions.

a) What is a balance sheet?

b) Why is it necessary for a business to provide a balance sheet for report?

c) What is the difference between the columnar form and the T form?

d) What are two other financial statements?

3. Read the text again. Find and write down words in the text that mean the same as the following words and definitions. They are in the same order as they appear in the text.

a. a written statement showing the value of a company at a particular time	b. something such as money, workers, or equipment that can be used to help a business	c. an arrangement in which someone completely owns a building or a piece of land
d. money in the form of notes and coins	e. to agree to be responsible for a job or project and do it	f. a change in the form of something
g. the amount of money that is needed in order to buy, pay for, or do something	h. a statement telling a customer how much money you will charge if they employ you to do a particular piece of work	i. to provide the money for something that costs a lot
j. to receive and use money that belongs to someone else and promise to give it back to them later	k. money provided by a bank to a customer, for an agreed purpose and period of time	l. the buildings that a business or organization uses
m. a piece of furniture or equipment that is fixed in its place and is considered part of the building	n. a piece of something that you connect to something	o. the action or process of buying or selling or doing something related to business
p. to buy something	q. to be pressed for money	r. an agreement with your bank that allows you to spend money when you have no money left in your account
s. a person, place or thing that provides something you need or want	t. assets which are expected to stay in the business for longer than the given accounting period. The business will need them to continue operations in future	u. assets which are “used up” in the day - to – day operations of a business and which can be converted into cash faster and without potential loss of value
v. property or goods that you agree to give to someone who has lent you money if you cannot pay the money back	w. to take an amount or number from a total	x. regular costs and money owed
y. an official arrangement with a company in which the company promises to pay a fixed rate of interest on money you have invested in it	z. an official document that lists the amounts of money that have been put in or taken out of a bank account

4. Working in pairs, compare the net profit of Baines’ Nursery after tax with the amount of money they invested in the business. Assuming banks are paying 10 per cent interest on deposit accounts should the Baines be pleased with the results of their first year’s trading? Explain your answer.

5. Look at this example of a balance sheet. Replace the underlined words or phrases with a word or phrase from the box with a similar meaning.

bank overdraft land preference shares tax

capital reserves ordinary shares share capital working capital creditors plant stock

BOGUS INDUSTRIES plc

Balance sheet as at 31 December 2004

ASSETS $000

Fixed assets

(1) Property 420

Buildings 180

(2) Equipment and machinery 100

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