Format and scope
The balance sheet format is prescribed by Schedule III of the Companies Act 2013, and Ind AS 1 adds the statement of changes in shareholders' equity. The Companies Act format applies to all industries except those whose regulators prescribe their own, so banking, insurance and utility companies follow different formats. The syllabus works through the consolidated balance sheet of Bharti Airtel for the year ending 31 March 2019, and the figures below come from that example.
Assets
Assets are items expected to provide future benefits, but generally accepted accounting principles allow a company to recognise only assets that are quantifiable in monetary terms and have been paid for. An entity cannot generally recognise self-generated assets such as its own brand name. Non-current assets are likely to give benefits over the long term, usually more than one year; current assets benefit the organisation within one operating cycle, taken as one year or less in most cases, with one year used by convention when the cycle crosses a year.
Current assets
Equity
Equity is the residual interest belonging to the owners: assets minus liabilities. Its breakdown rarely concerns analysts, except those judging the company's ability to distribute cash to shareholders.
| Component | What it represents | |
|---|---|---|
| Share capital | Face value of paid-up share capital | The nominal amount |
| Share premium | Amount received above face value in an IPO or FPO | Paid-in surplus |
| Retained earnings | Profit and OCI not distributed as dividend or set aside for a purpose | Accumulated undistributed profit |
| General reserve | Part of retained earnings set aside for future use | Earmarked retained earnings |
| Capital and revaluation reserve | Surplus from recognising assets above acquisition price | Typically not available for dividends |
| Minority (non-controlling) interest | Share of a subsidiary's equity held by shareholders other than the parent | Present only in consolidated statements |
Non-current liabilities
Obligations to be fulfilled after one year.
Current liabilities
Obligations to be fulfilled within one year: payables to suppliers of goods and services; short-term debt borrowed for under a year, which is theoretically due within the year but typically rolled over or refinanced, so companies carry it far into the future; short-term provisions; the current portion of long-term liabilities; deferred revenue; advances from customers; unpaid expenses and expenses accrued but not due.
A company's own brand, however valuable, is not an asset in its books; an acquired brand is. Internally developed software is the exception among self-generated items. And goodwill only exists after an acquisition, never for the company's own reputation.
- Assets are items expected to give future benefits, but only those quantifiable in money and paid for can be recognised, so a company's own brand name stays off the balance sheet. Non-current assets benefit beyond a year; current assets benefit within one operating cycle, taken as one year by convention when the cycle is longer.
- Non-current assets: property, plant and equipment at historical cost net of accumulated depreciation (Ind AS 16 permits a revaluation model applied to an entire asset class); capital work in progress; goodwill (consideration paid above the fair value of net assets acquired, an intangible tested periodically for impairment; paying less than fair value goes to capital reserve); intangibles such as acquired copyrights, patents and brands at cost less amortisation; intangibles under development; investments in joint ventures and associates under the equity method; non-current financial assets at amortised cost for debt-type items and fair value otherwise.
- Current assets: inventory at cost or market value, whichever is lower; current financial assets (cash and cash equivalents, other bank balances, receivables net of provision for doubtful debts, short-term investments at fair value, other claims within a year); other current assets such as prepaid expenses whose benefit comes in kind.
- Equity is the residual interest: share capital at face value, share premium, retained earnings, general reserve, capital and revaluation reserves (normally not distributable), and minority or non-controlling interest, which appears only in consolidated statements. Liabilities split into non-current (long-term debt with the current portion shown separately, lease liabilities that analysts treat as debt, derivative losses, other long-term financial liabilities, deferred revenue, provisions) and current (payables, short-term debt that is often rolled over, short-term provisions, current portion of long-term liabilities, deferred revenue, customer advances, accrued expenses).