The Worth of The Balance Sheet

The Worth of The Balance Sheet

The worth of the balance Sheet

The company will create more reserves and may classify them, such as 'Dividend equalisation reserve' for the maintenance of a stable future dividend. Some types of reserves are known as 'reserve Thuds' and are set aside for specific purposes, e.g. to redeem preference shares. These funds should be repre-sented on the assets side by investments readily convertible into cash at short notice which are entered on the balance sheet as 'Short-term investments'. In addition to provision for future taxation which is shown separately, 'Current taxation' is entered under current liabilities. Some of the profits will be distributed as dividends to share holders.

At times a company requires more capital and this is raised by a loan from the bank (or bank overdraft) which is a short-term liability, or by loans from the investing public in the form of 'debentures' (secured loan) or 'loan stock' (unsecured), which are long-term liabilities.

An asset which appears on some balance sheets is

which is an intangible asset representing the standing and repute of the company, and introduced when the company was formed or on the acquisition of a subsidiary or branch. This asset is intangible because it cannot usually be converted into cash unless the company is sold and also because its value is uncertain. The ultimate balance sheet would be recorded as follows:

Liabilities Assets

SHARE CAPITAL:

Preference shares

Ordinary shares

CAPITAL RESERVES REVENUE RESERVES LOAN CAPITAL

Debentures

Loan stock ........ FUTURE TAXATIONt CURRENT LIABILITIES:

Trade creditors

Current taxation

Proposed dividends.. (net)

FIXED ASSETS:

Land, buildings, machinery, et

Less depreciation

GOODWILL ........

TRADE Investments

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