 Namaste, welcome to the fourth session of our financial accounting course. I hope you have enjoyed first 3 sessions and first session 1 and 2 were very much introductory. We had just started what is financial accounting, then we went to understand financial statements particularly the starting point of balance sheet which we saw how it gets emerged from business cycle, we also discussed about what is there in the annual report. In the last session we had started a little detailed discussion of balance sheet. So, I will just go back to the formats which we have seen, those of who have first time seen the balance sheet, this was the short format at one glance to understand what is the balance sheet. On one side we have got assets which provide a list of all the resources with the enterprise, on the other side we have got liabilities. So, liabilities are giving you the providers for the resources or there are internal people like owners who have given us owners funds, there are external people like banks who have given us external liabilities, both are listed under the head liabilities. After this we had started discussion on format as per schedule 6. Now, few of you may be wondering what is this schedule 6 mean, now schedule 6 is a schedule under companies act. So, for all the companies the balance sheet is to be prepared as per this format. Now, under schedule 6 the first item or the first part is I refers to equity and liabilities, that is what we had discussed in the last session, under that you have got one that is shareholders funds, I hope you have understood it, if you have a doubt in anything not only here, but even of the earlier items fees feel free to discuss it on discussion forums. So, the team from IITB would like to respond to all your queries, please be responsive, discuss a lot on your discussion forum. As I have told you earlier, I hope you have decided about your company, download the annual report of that company, look at the balance sheet. As we are studying a particular financial statement, please look at the balance sheet of your company and any doubts you have you can discuss with your classmates, you can also discuss and ask it on to IIT team. We will be responding to each and every question from your side. So, under item number 1 there are 3 sub items, share capital, reserves and surplus and money received against share warrant. So, capital, share capital is a money which is put in by the owners, reserves and surplus refers to the profits which are plowed in, C refers to the money which is collected from certain people and in future they will receive shares, so far they have not received any shares. Such money is shown as money received against share warrant. In item number 2, share application money pending allotment, this is also similar, the prospective investors have paid me some money. Till that time the shares are not yet received, the money is shown under item number 2 that is share application money pending allotment. Once they are allotted it will go in 1, if they are not allotted it will be refunded, that is item number 2. Item number 3 is non-current liabilities, again you have got 4 items, A are long-term borrowings. So, these are the loans taken for more than 1 year, B is deferred tax liability. Now, this is a tax liability, the amount which is to be paid as tax, but not in the current year, it will be paid after 2, 3, 4 years due to certain provisions under tax laws. They are deferred tax liabilities, later on we are going to discuss how they are calculated, but once we complete our balance sheet. C is other long-term liabilities, so other than A and B, if there are deposits received for more than 1 year or if there are some type of salaries which are unpaid for a longer period, they are all shown under other long-term liabilities, then 3D is long-term provisions. So, provisions are those items in liabilities of which the amount is not known with substantial accuracy. So, a provision is created and it is shown under 3D, especially if it is for more than 1 year. The next one which discussed was item number 4, in item number 4A, then item number 4 where current liabilities as the name suggests these are for less than 1 year, so 4A is short-term borrowings, so loans taken for less than 1 year, 4 we are trade payables, so these are various purchases made, but we have not yet paid related to our regular business, so they are called as trade payables. 4C are any other current liabilities, like do you remember any examples? We had discussed outstanding salaries or outstanding electricity bills or outstanding office expenses, outstanding stationary charges, so on, any expense which is not yet paid, but is payable in 1 year, that is other current liabilities. 4D are short-term provisions, so again estimated liabilities which are payable in short-term. So, in our last session we had come up to item 4, this was a quick revision, I am taking revision every time especially in the earlier sessions, but I hope you are attentive and you have understood whatever we have discussed till now. Now let us go to the second part of balance sheet that is known as assets, so these are the properties or these are the resources which are available with the enterprise. In 2, again the item number 1 is non-current asset, as the name suggests non-current means it is for more than 1 year or you can also call it as a long term. In that we have got A, A refers to fixed assets, in A again we have got a small 1 and 2, so A1 is tangible assets, A2 is intangible assets. In our second session we had discussed what is a fixed asset, I hope you remember. So, fixed assets refer to the infrastructure of the undertaking, it refers to those assets which are used for running the business cycle, they themselves do not take part in business cycle, they do not get converted but they support the money cycle, so which are such items, for example we have got land, we may have a building, we may have a machinery, we may have vehicles, they are with us for a longer period, they help us in doing business or they help us in doing our regular activities, but they are themselves are not getting converted, so it is not a stock. So, these are fixed assets, they are of 2 types, one is tangible, the other is intangible, tangible means jisko touch kar sakta hai jo physically existence jiska hai. So, all the examples which we discussed like land building, vehicles, these are all tangible, second one are intangibles, they have no physical existence, but they have a value. So, what are such assets? Can you think of any example? I think all of you use computers, that is all your hardware, but computer has a software built into it, that software you cannot touch or you cannot feel it, but you can see its impact, that is an example of intangible asset. Can you think of any other example? There are patents, there are copyrights, there are trademarks, these all are rights of the company or rights of the owner, but not of physical in nature, it is a intellectual property, all these are examples of intangible fixed assets. This is an era where intangible assets are becoming more important than tangible assets, say 100 years before tangible assets were very important. So, large companies like Ford or General Motors or General Electric were big companies. Today which are the big companies? I think all of you know now it is Google, it is Facebook, it is Microsoft, do they have physical assets? Of course, they have little bit, but most of their assets are intangible in nature. Anyway, this was just for discussion, in general for any company there will be some tangible assets, some intangible assets to be shown under A1 and 2. A3 is capital work in progress. Now, what is meant by work in progress? That means, something which is under construction, capital because it is a long term. So, suppose building is under construction. Right now the building is not ready, but some work is on, we have spent some money to complete it. So, as of now, I cannot show it as a building or as a tangible asset, neither I can show the money paid just as an advance because some work is already happened. That is why it is shown as a capital work in progress. The fourth one is intangible assets under development. Now, what is this? Just like capital work in progress, lot of intangible assets are being created or being developed, but still they are not ready. Like you have applied for patent, but patent is not yet sanctioned, but you have already spent lot of amount on research, then that will be a intangible asset under development. Or for example, you are developing some software, development testing has not happened. So, it is not in the ready stage for use, but cost has been incurred in the development process. That will be shown as intangible asset under development. Now, when you study your company's balance sheet for last 2-3 years, please try to look at item 3 and 4 carefully. Because this year, suppose it is under construction or under development, next year it will be ready and it would have gone into tangible or intangible asset. Because we expect that 1 or 2 years may come pura hoke wo tangibly or intangible hojayaega. Suppose a particular item is shown as under construction for a long period 2, 3, 4 years, then we will have a doubt as to why that item is not getting ready. Is it a fraud to show that item or there are genuine problems if not completing it? Of course, we cannot conclude anything right away, but I am just saying that you can just look at the details of item 3 and 4. Are these items stagnant or they are getting ready and new items are by being newly constructed. Now, this A that is fixed assets has 1, 2, 3, 4. The total of that is considered as a total of fixed assets. Now, the second item that is 1B is non-current investment. In our last to last session, we had discussed a bit about what is an investment. Do you remember? So, if you put in some money outside your business, it is called as an investment. If we construct a building in our own business or we purchased a stock, then that is not an investment. Investment means you have to give it money to some other company or somewhere else. So, can you give examples of investments? So, for example, shares, for example, bank deposits, for example, units of mutual fund. If you invest money with some other company or with a bank, then it is an investment. If that investment is done for more than 1 year, it will be shown under 1B as non-current investment. Some of you may be interested in finance. In future, you might be wanting to do career in finance. You would have heard of terms like portfolio management or stock market, whatever the money you are putting in there, that is all under 1B and there is a science of how that is managed. How do you invest? When do you buy? When do you sell? All those things are studied under portfolio management. Of course, right now we will not go into it, but what portfolio they have, your company has, you can see from 1B. So, when you go to balance sheet of your company, have a look at 1B to understand what type of investments they are making. Now, go to 1C, that is deferred tax asset. If you remember in the last session and even in the beginning of today's session, we discussed about deferred tax liability. Now, deferred means something which is not due today or in the current year, which is due in later years. If it is a liability, it will be shown as a deferred tax liability. This is a deferred tax asset. So, today you will not get the benefit of it. You will get it after 2-3 years, then it is called as a deferred tax asset. Does it mean after 3 years government will pay you tax? Of course, no, government gives you some benefits, which you can use after 2 years, after 3 years, benefit of remission of tax or reduction of tax. That is called as a deferred tax asset. Exactly, we will discuss later on, but if there is any such asset in existence, it will be shown under 1C. Now, the next item is D, long-term loans and advances. Now, what do you mean by loans and advances? Look, loan is a word, 2 times, 2 types. One is loaned, then it will be shown as a borrowing under the liabilities. We have seen it in the last session. But suppose company ne dusre kisko loan diya hai, then to distinguish it from normal loans, we will call it as loan and advance. So, if company gives loan to somebody or advance to somebody, it is considered as a loans and advances. So, in future, if you see the word loan and advance, always keep in mind that it is an asset item. Sir, flow naya to it is a liability. If it is a loan and advance, there is a hint to you that it is an asset. Now, since this is for a longer period, we are showing it as a long-term loans and advance. What can be an example? For example, suppose company gives advance to employee to purchase new house. I mean, housing advance wo ek saal me to apas nahi kar pahega. It may be for 5 years, 10 years, 15 years, then it will be shown as a long-term loan and advance. It can also be a loan or advance given to some supplier for 2-3 years. Let us say supplier wants to buy a new machinery, hum usko help karna chaar hai. So, we will give some loan to be repaid after 3 years, then it will be shown as a long-term loan and advance. Then one E, other non-current assets. So, A, B, C, D, K alawa isko chodke aur koi agar long-term asset hai, then it will be shown as a other non-current asset. So, under item 1, we have discussed whole of long-term assets. Now, let us go to second. So, in assets, we have got 1 as non-current, 2 as current. I think you all know the definition. These are all going to mature or which are going to be liquidated or converted within a period of 1 year. If you remember in our session 1, we have seen the business cycle. So, business cycle me ka hota hai, mostly it is a exchange of fixed assets. Non-current assets we will discuss or we will deal in them only after 2, 3 years, 4 years, 5 years. But current assets ka transaction, her roj hota hai, her moment me hota hai, they are continuously being exchanged. So, under 2, 1, we have got current investments. I think you remember what is an investment. So, we put money outside our business. It is called investment. Jaise amne bank me FD rakhaan. Agar FD amne 3 mehne ke liye rakhaan, then it will be shown as a current investment. Yaamne shares me invest kiya hai. Lekin 2 mehne me am log wo shares bechne wale hai, then it will be a current investment. Then 2B is inventories. Now, what do you understand by inventory? The other name for is stocks. We might have some raw material. Haan wo raw material ko convert karke finish goods banayenge or we can purchase finish goods. All these taken together are known as inventories. So, these are items which are meant to be converted or sold in our normal course of business, which will be shown under 2B. C is trade payables, sorry trade receivables. We have already seen trade payables under liability. What is a trade receivable? In B2B business, normally when we sell the goods, across the counter payment name, we will sell the goods, we will send the bill after 15 days, 1 month, 2 month, customer will make the payment. So, till the time the money is received, it is called as a trade receivable. In other words, whenever we make a credit sale, it will be shown as a trade receivable. The word trade shows that it is a day-to-day activity. It is a regular business activity relating to or creating a receivable for me. It will be called as a trade receivable, 2C. Now, 2D, cash and cash equivalent. I think everybody understands. What is a cash equivalent? There are items which are almost like cash. They can be very easily converted into cash. So, they are called as cash equivalents. Later on, we are going to study cash flow statement. If you remember, that is a third statement. When we study cash flow, we will go into details about what is cash and cash equivalent, but right now you can just assume it that it is more or less like a cash. Now, E, that is short term loans and advances. We have just discussed loans and advance. I hope you remember. So, these are the loans given by the entity. So, under that, if they are for less than 1 year, we will call it as a short term loans and advance. 2F, other current assets. So, A to E, if there is a particular item which is of short term in nature, but it does not fit in A to E, it will be shown under F as other current assets. I hope you have got what is an asset. So, it is a total of 1 plus 2. Simple A, more than 1 year A to non-current A, less than 1 year A to current A. So, we get here the total of assets. Some of you might have many queries. Do not worry, we are going to again discuss the assets. Taking each asset, we will discuss it in detail. Right now, let us go ahead. So, if you look at the elements of balance sheet, there are 3 parts. One is an asset, then it is funded by a liability. Here, I mean an external liability or by the owners, which is called as owner's fund. Now, let us go into detail of each item. So, how do you define an asset? This is a probable future economic benefit. What is owned or controlled? So, asset may ane ke liye 2 konditions hai. Ek to uski koi economic value honi chahiye. Dhusra, wo item owned hona chahiye. If you remember, on day 1, the first session, I had told you that a particular asset does not come in balance sheet because it does not satisfy condition number 2. Do you remember that item? That item is a human asset. The employees, scientists, managers, executives jo log amare sath kama kar rahe hai. Actually, they are very important asset to the entity, but that cannot be shown in the balance sheet because look at the definition. It should have a probable economic value, which they have, but it should also be owned or controlled. So, employees are not our slaves. They are not owned by the company. So, they cannot be shown as owned assets. That is why human assets you would not see in the balance sheet. Now, any other asset, first of all you have to see whether it meets these 2 conditions. I think examples you are all aware, cash, land, building, investment, machinery. Think of another 10 examples and I think you can include it in your assignment. Now, again the definition is given that it is a resource controlled by the enterprise. As a result of some past event, but it should have a future value. The second point is, resources must have a cost or value that can be measured reliably. Now, the types of assets, we have got fixed assets, current assets and investments. I think with this we will stop here. We have already discussed it when we discuss the balance sheet, but we will take up each item now individually and we will explain it in detail. But till that time as I have told you, please go to the balance sheet of your company and look at what assets they have. Then only you will really have a real type of learning. Namaste. Thank you.