 Namaste. In financial accounting, if you remember in our first session we had tried to understand what is accounting and then started discussion on financial statements. In the second session we discussed what is a business cycle and from that how the main financial statements that is balance sheet and P and L account emerges. Then in our session 3 and 4, we went into what is balance sheet and what are the items in balance sheet. Today we will continue with our discussion on balance sheet and then we will proceed to understand the profit and loss account. We will take a quick review of balance sheet, so you already know short form format of balance sheet, there are 6 items, then I will go ahead we are going to discuss each of them in detail. We had also seen a detailed format of balance sheet under schedule 3 of companies act. So we have equities and liabilities, then shareholders funds, share, capital, reserves and surplus, I hope you know their meanings. If you really do not know, please do not keep quiet, ask them on the discussion forum, then you have got money received against share warrant, then we went on to discuss share application money pending allotment and non-current liabilities, then current liabilities, then we discussed on assets again divided as non-current assets followed by current asset. If we look at the format, it is as per the permanence. So what is permanent comes first, for example in balance sheet share capital has the longest tenure that comes first, then non-current liabilities, then current liabilities. In assets first we have got non-current liabilities because they are going to be with us for more than one year, within that also fixed assets are likely to be more with the company for a longer tenure. So first we have got fixed assets, then we have got other non-current assets, then we have got current assets. So in the format of balance sheet, if we look at the elements, which we are going to discuss in detail now, there are three elements, one is assets, next liabilities, here I mean external liabilities followed by owner's funds. In the last session, we had just started our discussion on assets, so we will just start again from that. In the assets, we are already seeing the major examples of assets. So we have got land building, patents, investments, cash and so on. As a definition, something which is a property of the company which has a probable economic value that is called as an asset and the second condition is it must be owned or controlled by the entity. We also saw in our earlier sessions, we had seen that business cycle. You need human power, you need people to manage the business, they are invaluable assets of the enterprise, their skills are important, how they behave is important, however they cannot be shown in the balance sheet because human beings are not owned by the company. In assets, essentially there are the items which are owned by the company and which are going to have economic value in future. Usually, assets would not be made available to company for free, so there will be some cost for the asset and we are assuming that there is an economic value which can be measured and if exact value is not known, at least it can be estimated. Now coming to the types of assets, as we know there are major two types of assets, one are non-current, the other ones are current, non-current means those which are likely to last for more than one year which again the major examples of fixed assets and current assets. Do you remember what is meant by fixed assets? Because when we discussed money cycle, we had started with the first asset which is fixed asset. Do you remember what it is? Yes, many of you are correct I think, it is a kind of infrastructure using which company does it business. Whatever operations are happening, fixed assets themselves do not get converted but they act as catalyzed, catalysts, they support the whole process. Now what are the types of fixed assets? There are two types, one is tangible, the other is intangible. Tangible means something which you can touch, physical existence, they are called as tangible assets. I think the examples are very, very easy, everybody knows what are the examples of tangible assets, we have got land, machinery, furniture, vehicles, large number of say computers, cameras, mobile phones, large number of assets which you can touch feel are all called as tangible fixed assets. The other type is intangible. Now this is something which you cannot touch or feel but still they have a value, they are going to be with a company for a long time. So what are the examples of intangible assets? Can you think of any examples? Here I had taken one example if you remember, we had seen that we have a computer, is it a fixed asset? The answer is yes, there are two things in computer, there is a hardware, there will be a mouse, there will be a keyboard, there will be all other parts. Now whatever you can touch, whatever you can see, these are all tangible parts but there is also intangible part which is software, which is loaded in the computer and many of you use mobile phone, so in mobile phone more frequently whole day I think most of you would be on mobile phone. So you can see your instrument but in that instrument there are apps, there are various other things which are loaded on instrument which do not have physical existence but which are of very much use to you. Those things are an example of intangible assets. Any other examples of intangible asset do you think of? Let us see you are doing some scientific research and you get a new formula or you develop a new product, then you will apply for a patent. If you get a patent it has a very important economic value and patent will be an example of intangible asset. Those of you who are good in art or those who have got creative attitude, you might have a new drawing or you might come out with a new size or a design that also can be registered. It is registered as a copyright. Then a copyright or a trademark is also an example of intangible asset, are you seeing the example? So we have got patents, we have got trademarks, we have got goodwill. Now what is goodwill? As the name suggests it is a good name of the concern. If you are say running a shop for many years, 2 years, 3 years, 5 years, 10 years, several people in the locality or even from far away places will know your shop. They would prefer your shop over other shops because of the trust factor, because of reliability and so on, that will be what is known as goodwill. There are several brands of international and national importance, they can be considered to be valuable, that brand name itself is valuable. Can you name of or think of a few brands? I think everybody would have heard of Tata, which is highly reputed brand all over India. There are several companies under Tata's like TCS or Tata Motors or Tata Steel. But the brand name is Tata. So that Tata name is attached with lot of goodwill. Similarly, nowadays most of you know Geo. So Geo is a brand name which is owned by Reliance Industries, that is also a brand name. Not to advertise too many companies, but I am just giving you examples. For example, relatively new but which has taken a big name is Patanjali. So Patanjali is a big brand name today, not only in Yog but also in Ayurveda like that there are also several international brands. So all of these are backed by some goodwill of that company. It is sometimes copyrighted, then the copyright is a intangible asset, sometimes it is not copyrighted, then it can be called as a goodwill. Now valuation of intangible assets is bit difficult. Relatively valuation of tangible assets is easy. Anyway, we will go into it later on. But right now on your screen you have got variety of both tangible and intangible fixed assets. Now the next one is current assets. Now what is the definition of current asset? I think we have seen it earlier, we have got a money cycle or a cycle of operations and in the operations cycle or in the money cycle or in the value addition cycle, many assets are getting continuously exchanged. Those assets are typically what are known as current assets. Normally the life of these assets is not very long, they are likely to be with you for a relatively shorter time, may be 15 days, 1 month, 2 months, 3 months and so on, these assets are known as current assets. Now current assets can be classified into two types. One is a monetary one, the other one is non-monetary. Now can you give examples of monetary current assets or non-monetary current asset? Is any one of you able to think? Something which can be expressed in money terms is monetary, I think most of you would be thinking of it. But in fact, every value in the financial statement can be expressed in monetary terms. Then can you call everything as a monetary, then what will come as non-monetary? I will try to respond to your question. So see monetary assets are debtors and bank. So they represent something which you are going to receive from bank or something which you are going to receive from your customers or debtors, their value does not change. So they are called as monetary fixed assets, now monetary current assets. Now what are non-monetary current assets? Can you think of any examples? Non-monetary current assets are variety of stocks or inventory with you. So if you have purchased raw material, it is a pick, it is an inventory of raw material. You will convert it into finished goods, it becomes inventory of finished goods. Some of the companies only deal trading business. They purchase finished goods, they sell finished goods. In that case, the stock of finished goods in their hand is a non-monetary current asset. As I was just saying, even non-monetary assets have a monetary value. Then why do you call them non-monetary? The reason is because their value goes on changing with the changes in the market value in the market. So for example, the value of inventory of finished goods may go up and down, the value of investment sometimes go up and down. So such assets are known as non-monetary current assets. Now I think you would have understood what are the important assets. Now let us go to the next part, that is liability. Now what is meant by a liability? I think you are able to see it on the screen, that it is a present obligation of the enterprise that arise from the past events. So in the past, suppose we have purchased raw material from somebody. If you pay in cash, you get raw material, you pay cash, then there is no liability. But if you purchase raw material but you are yet to pay, let us say you are going to pay at the end of one month. But as of today you are not paid, then it will be shown as a liability in your books. It will be what type of liability in the example which I am saying? I have purchased raw material, I have not yet paid, I am going to pay within a month. What type of liability it is? I think most of you are guessing it correctly, it will be a current liability because it is going to be settled in just one month. Next types we will see later on. Now it is an existing obligation, there should be some evidence available on the balance sheet date and it is expected that there will be some outflow which can be anticipated and value also can be measured. So suppose we have purchased raw material of 1 lakh, we will pay after one month rupees 1 lakh. So you know that expected outflow is 1 lakh, that is why it is called as a liability. Sometimes you do not know exact value, but you can estimate the value, still it will be called as a liability. Can you think of any examples of liability other than what example I give you? I think most of you are guessing it rightly. Suppose I take a loan from bank, I will have to repay it. So bank loan also is an example of a liability. Now what are the types of liabilities? Nowadays your life is very simple. If you remember current, one type is current, the other type is non-current. So non-current is something which will be settled after one year which has a life of more than one year. So can you think of any examples of non-current liability? I think bank loan which we discussed was one because it is mostly for more than one year. But other than bank loan, are there any other liabilities? Any other non-current liabilities? These are long term or non-current liabilities, they are likely to be repaid or performed beyond one year. Usually they represent sources of funds because that is how the enterprise or company is raising its funds. Now example one is bank loan you already know if it is more than one year. It can be loan from NBFCs, do you know what is NBFC? Full form is non-banking financial companies. So other than banks, there are companies which give you variety of loans. That is also a non-current liability for us. One more possible liability is debenture. Now what do you understand by debentures? debenture also is a type of loan. So many companies come out with a debenture issue. They inform the investors that we will issue you debentures. Investors pay them money and they issue a certificate for debenture. So it is a loan but which can be traded in the debt market. In any case as far as the balance sheet is concerned it is an example of a long term loan. One more possible liability is deferred tax liability. Earlier we had discussed a bit on it when we discussed the format. So normally the tax liability should be paid within one year but under special circumstances or because of some specific provision in the law if it can be paid after more than one year it will be called as a deferred tax liability. Now the other type is current liability. I think you all know the examples but just have a look. So these are the obligations which are likely to be repaid or performed within one year and normally they come from day to day business transactions or from the money cycle or from the business cycle as we were seeing. I think you know most of the examples. One is creditors also known as accounts payable then outstanding expenses. Now what do you mean by outstanding expenses? So for example if you have got 100 employees normally the salary should be paid on the last day of the month say on 30th or 31st. If we do not pay salary on that day and we pay salary on let us say salary of April should be paid by 30th of April but if you do not pay. If we pay it in May on 10th of May then on 30th of April up to 9th of May if you make a daily balance sheet in each balance sheet it will be shown as a outstanding expense or it can be also called as an outstanding liability. Knowing that any expense which is unpaid will be considered as an outstanding expense. Then one more example is interest accrued but not due. Now what is the meaning? So suppose you have taken loan from bank let us say you have taken loan of 1 lakh at 10% per annum that means every year you have to pay 10% so on 1 lakh you have to pay 10,000 but at the end of the year. Now at the end of the year if you do not pay 10,000 it will be an example of an outstanding expense which we have already discussed but even during the year let us say 3 months are over and you are preparing a balance sheet. So you have to pay 10,000 at the end of the year that means at the end of 3 months you have to pay 1 4th of 10,000 or say 2,500 but you do not have to pay it now you will pay it at the end of the year but at the end of 3 months you have already created an obligation it is called as an accrued interest it is accrued but not due due curve hojayaega ek saal ke baat due hojayaega but after 3 months since you have used the funds you will need to show 2,500 as an accrued interest it is one more example of current liability. The next example is provision for tax now what is the meaning? As we were discussing whatever profit we earn we have to pay income tax on it the calculation is done by us finally it is to be approved by income tax department until it is approved by department we will show as per our calculation we will calculate the profit as per our calculation we will also calculate the taxes payable till the time we pay it it will be shown as provision for tax under the head current liabilities. The next is bank overdraft now what is the meaning of bank overdraft? Now bank gives a facility to the account holder that account holder can withdraw some money that is called as a bank overdraft so suppose we have deposited 10,000 in bank normally we can withdraw only 10,000 balance will be 0 but in case of current accounts you can deposit 10,000 but you can withdraw 15,000 that 5000 which you have taken more the balance in the bank account will be appearing as minus 5,000 that minus 5,000 is called as a bank overdraft of course there will be a limit that a particular company can draw how much from the bank but it is payable in the short term so it is considered as a current liability are you getting? Just think of some more examples of current liabilities now we have understood both non-current assets, current assets then current non-current liabilities current liabilities think of the examples and they will be discussed on the discussion forum ok. Now let us go to one special type of liability that is called as a provision if you have marked when we discuss the current liability we had shown one item known as provision for tax now did you think why it is called as a provision why I did not call it as outstanding tax Agar mani tax time pehbhara no problem no liabilities created if I do not pay tax on time it should have been shown as a outstanding tax but instead of calling it outstanding we are calling it provision for tax now what is the reason ok now have a look at it so provision are those amounts which are retained by way of providing for a known liability for which amount cannot be determined with substantial accuracy that means I know there is a obligation I know there is a liability but I do not know exactly how much should be payable in such scenarios you create a special item it is also a type of liability but it has a special name as provision so provision refers to amount which is set aside for meeting claims which are admissible but amount is not yet confirmed now examples are also in front of you one example is provision for electricity charges now let us say we prepare accounts or balance sheet at the end of 31st of March and every month we get the bill for electricity on the 10th of next month that means February kajo bill have a 10th of March ko aega March kajo bill have a 10th of April ko aega that means on 31st March I do not know the amount of bill but I know that I have consumed electricity that means some amount is payable on account of electricity charges so as on 31st March when I am making a balance sheet I am unaware of the amount which I have to pay but I am very much aware that electricity has been consumed that means some amount needs to be provided for so we will create a provision now the question which will come in your mind is so far we have not received any bill so how will we know the charges for electricity bill for the month of March now there are various ways of estimating for example I can do one thing I know the charges for last 11 months right from April to February I have all the bills only March bill is pending so I can take average of 11 months or I can even take last March electricity bill and add 5 or 10 percent and treat it as a provision for this March so there are various ways of estimating but there will be some estimation done and a provision is created I hope you are getting what is a provision another example which we are already discussed was provision for taxes now as far as the provision is concerned we do not know how much taxes will be finally payable because those decisions are taken by tax authorities but what I do is based on my understanding I calculate profit I also calculate the taxes payable and make a provision in the balance sheet for estimated amount of taxes likely to be paid that is called as a provision for tax same way to the employees normally bonus is paid at the end of the year based on their performance exact amount is not known because that will be known after performance evaluation so as on 31st March some estimated provision is made for bonus that is called as provision for bonus there is a possibility that there will be some bad debts we are having debtors or accounts receivable in the balance sheet there could be some bad debts maybe half percent maybe 1 percent maybe 2 percent maybe 5 percent according to the type of business I will make an estimate and create a provision that is known as provision for bad debts so today we have discussed both current non-current assets then current non-current liabilities and we have come up to some specific liability which is called as provision in our next session we will go ahead and go into further some more types of liabilities and then into profit and loss account. Thank you so much.