Balance Sheet literature and items

1. Summary
Purposes of the Balance Sheet
1. A balance sheet, or statement of financial position, summarizes the financial position of a company at
a particular date by reporting the economic resources (assets), the economic obligations (liabilities), and
equity. It reports a company's resource structure (major classes and amounts of assets) and its financial
structure (major classes and amounts of liabilities and equity). It is a detailed explanation of the basic
accounting equation: Assets = Liabilities + Stockholders' Equity.
2. The balance sheet information helps external users (a) assess the company's liquidity, financial
flexibility, and operating capability, and (b) evaluate its income-producing performance during the
period. Liquidity is the speed with which assets can be converted into cash to pay bills. Information
about liquidity helps users evaluate the timing of cash flows. This is important in evaluating the amount
of future cash flows.
3. A company's capital, its assets less its liabilities, is also called its net assets or owners' equity. By
comparing beginning owners' equity with ending owners' equity, the financial statement user can tell
whether capital for the accounting period was increased or decreased.
Recognition in the Balance Sheet
4. Recognition is the process of formally recording and reporting an element in the financial statements.
To be recognized, an item must (a) meet the definition of an element as specified in FASB Statement of
Concepts No. 6, (b) be measurable, (c) be relevant, and (d) be reliable.
Elements of the Balance Sheet
5. The elements of the balance sheet are the broad classes of items comprising it. These items and their
definitions are:
a) Assets: The probable future economic benefits obtained or controlled by a company as a result of
past transactions or events.
b) Liabilities: The probable future sacrifices of economic benefits arising from the present obligations of
a company to transfer assets or provide services in the future as a result of past transactions or events.
c) Stockholders’ equity: The residual interest in the assets of a company after the liabilities has been
deducted.
Measurement (Valuation) of the Elements of a Balance Sheet
6. Assets and liabilities must have a monetary value for balance sheet presentation. The FASB has
identified five alternative valuation methods.
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2. a) Historical cost is the exchange price of the asset at the time of the original transaction reduced by any
recorded depreciation, amortization, or impairment to date. This is the most commonly used valuation.
b) Fair Value is the price that a company would receive to sell an asset (or transfer a liability) in an
orderly transaction between market participants on the date of measurement. Fair value may be used
on a company’s balance sheet to report the value of its “financial” assets (and liabilities), such as cash,
accounts receivable, and notes receivable. To increase consistency and comparability in fair value
measurements, the FASB established a hierarchy that prioritizes the inputs a company is to use in its
valuation method.
c) Present value is the net amount of the discounted future cash inflows less the discounted future cash
outflows relating to the asset.
Reporting Classifications on the Balance Sheet
7. The balance sheet is arranged to be useful to a company’s external users. The individual categories
(assets, liabilities, and stockholders’ equity) are further subdivided to provide useful information. These
subdivisions are briefly explained below.
8. Current assets are cash and other assets that a company expects to convert into cash, sell, or
consume within one year or the normal operating cycle, whichever is longer. An operating cycle, usually
a year or less, is the average time taken by a company to spend cash for inventory, process and sell the
inventory, and collect the cash from the sale. Current assets are presented in order of liquidity.
9. Current liabilities are obligations that a company expects to liquidate within one year or the operating
cycle (if longer) through the use of current assets or the creation of other current liabilities.
10. Working capital is the difference between a company's current assets and its current liabilities. A
company's working capital is a measure of the short-run liquidity of the company.
11. Long-term investments are investments that the company plans to hold for more than one year or
its operating cycle, if longer.
12. The property, plant, and equipment section of a company's balance sheet includes all tangible assets
(fixed assets) used in operations. Except for land, these assets are either depreciated, amortized (for
leased assets), or depleted (for natural resource assets). In these cases, a contra-asset account is
deducted from the original asset cost in order to display both the historical cost and the book value.
13. Intangible assets are noncurrent economic resources that are used in the operations but that have
no physical existence. The value of this type of asset lies in the special right of the company to its use.
Intangible assets with finite useful lives (e.g., patents) are amortized over their useful lives, and
disclosed on the balance sheet at book value. Intangible assets with indefinite lives (e.g., goodwill) are
not amortized but are reviewed for impairment at least annually. They are reported at their historical
cost or, if impaired, at their lower fair value.
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3. 14. Long-term liabilities (noncurrent liabilities) are obligations that are not expected to require the use
of current assets or not expected to create current liabilities within one year or the operating cycle, if
longer. Bonds are usually sold for more than face value (premium) or less than face value (discount). On
a balance sheet, bonds are reported at their book value. The book value is the face value of the bonds
plus any unamortized premium or less any unamortized discount.
15. The stockholders' equity section of a corporation's balance sheet consists of three main categories:
contributed capital, retained earnings, and accumulated other comprehensive income. Contributed
capital represents amounts owners have invested in the business. Contributed capital is often separated
into capital stock and additional paid-in capital. Corporations may issue two types of capital stock,
common and preferred, each of which has distinguishing characteristics.
16. Retained earnings represent the cumulative amount of past net income kept in the business.
17. Accumulated other comprehensive income (loss) includes (a) unrealized gains or losses in the market
value of investments in available-for-sale securities, (b) translation adjustments from converting the
financial statements of a company's foreign operations into U.S. dollars, (c) certain gains and losses on
"derivative" financial instruments, and (d) certain pension liability adjustments.
Statement of Changes in Stockholders’ Equity
18. FASB Statement of Concepts No. 6 suggests that financial statements include information about (a)
investments by owners, and (b) distributions to owners. To disclose this information as well as the
retained earnings changes, a statement of changes in stockholders' equity is often presented as a
financial statement. The statement of changes reconciles beginning balances of capital stock, additional
paid-in capital, retained earnings, and accumulated other comprehensive income to their ending
balances by showing the changes in each item.
Other Disclosure Issues
19. Because all of the relevant financial information pertaining to a company's activities cannot be
disclosed directly in the body of the financial statements, a company will make additional disclosures in
the notes to the financial statements.
20. APB Opinion No. 22 requires disclosure in a company’s notes of information related to its accounting
policies. This disclosure includes revenue recognition and asset allocation principles that involve: (a) a
selection from existing alternatives, (b) principles peculiar to a specific industry, or (c) an innovative
application of an accounting principle.
21. A company discloses contingent liabilities (loss contingencies) in the notes to the financial
statements if there is only a reasonable possibility that the loss may have been incurred or if the amount
of the loss cannot be reasonably estimated. If it is probable that the loss has been incurred and if the
amount can be reasonably estimated, an estimated loss from a loss contingency is accrued and reported
directly on the balance sheet as a liability or a reduction of an asset. Gain contingencies are not reported
in the financial statements and should be judiciously explained if disclosed in the notes. Gain
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4. contingencies are not reported in a company’s financial statements and, if disclosed in a note, should be
carefully explained in order to avoid misleading implications as to the likelihood of future revenues or
gains.
22. Another common note to the financial statements is a description of an important event that occurs
between the balance sheet date and the date of issuance of the annual report. This is called a
subsequent event. Subsequent events must be disclosed so that users may interpret the financial
statements in light of the most recent company information. If a subsequent event provides information
about conditions that existed on the balance sheet date and significantly affect the estimates used in
the preparation of the financial statements, the company adjusts the statements themselves.
23. Most users of financial statements are interested in evaluating trends of the company over time. For
this reason, financial statements are usually prepared on a comparative basis by presenting information
for the current and preceding year side by side.
24. Through the SEC's "integrated disclosures" provision, companies regulated by the SEC now satisfy
certain Form 10-K disclosure requirements by reference to information included in the annual report.
Therefore, these companies include (a) comparative balance sheets for two years and comparative
income statements and statements of cash flows for three years; (b) a five-year summary of critical
accounting information; (c) management's discussion and analysis (MD&A) of the company's financial
condition, changes in financial condition, and results of operations; and (d) disclosures on common stock
market prices and dividends. Each company’s chief executive officer and chief financial officer both must
“certify” that the company’s annual report in the Form 10-K (or interim report within the company’s
Form 10-Q) is both complete and accurate.
25. The IASB sets international accounting standards for published financial statements that are similar
to those in the United States. Under the International Accounting Standards, a balance sheet, statement
of changes in equity, income statement, and statement of cash flows are required as well as related
notes and explanatory materials. In general, classification of items and disclosures are similar to that
required under U.S. GAAP. However, on the balance sheet, the liabilities and owners' equity sections are
usually ordered differently.
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5. Examples of balance sheets using 100 ftse companies:
Consolidated balance sheet
At 28 February 2013
Whitbread
28 February
1 March
2013
2012
£m
£m
ASSETS
Non-current assets
Intangible assets
Property, plant and equipment
Investment in joint ventures
215.4
206.6
2,748.9
2,580.5
24.0
18.7
Investment in associate
1.7
1.6
Derivative financial instruments
7.1
-
Trade and other receivables
5.3
3.6
Other financial assets
-
-
3,002.4
2,811.0
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Derivative financial instruments
26.5
23.1
102.1
85.0
40.8
40.3
1.4
170.8
Assets held for sale
Total assets
148.4
1.5
0.6
3,174.7
2,960.0
9.0
14.2
10.3
10.7
LIABILITIES
Current liabilities
Financial liabilities
Provisions
Derivative financial instruments
Trade and other payables
6.6
37.7
15.4
347.6
321.3
409.2
Income tax liabilities
4.6
368.2
Non-current liabilities
Financial liabilities
502.9
530.4
Provisions
32.6
37.1
Derivative financial instruments
18.7
20.1
Deferred income tax liabilities
106.7
105.9
Pension liability
541.7
598.7
Trade and other payables
17.6
16.4
1,220.2
1,308.6
Total liabilities
1,629.4
1,676.8
Net assets
1,545.3
1,283.2
Equity
Share capital
148.3
147.5
Share premium
55.1
53.7
Capital redemption reserve
12.3
12.3
3,408.8
3,163.0
Retained earnings
Currency translation reserve
Other reserves
Equity attributable to equity holders of the parent
Non-controlling interest
Total equity
5
4.7
3.7
(2,094.7)
(2,103.4)
1,534.5
1,276.8
10.8
6.4
1,545.3
1,283.2

6. MARKS & SPENSER
CONSOLIDATED BALANCE SHEET
AS AT 31/03/2012
As at 31
March 2012
As at 2
April 2011
£ millions
ASSETS
Non-current assets
Intangible assets
Property, plant and equipment
Investment Property
Investments in joint ventures & associates
Other financial assets
Retirement benefit assets
Trade and other receivables
Derivative financial instruments
584.30
4,789.90
15.90
14.40
3.00
91.30
270.20
44.20
5,813.20
527.70
4,662.20
16.00
13.00
3.00
182.60
276.10
21.80
5,702.40
681.90
260.50
253.00
67.00
1.60
196.10
1,460.10
7,273.30
685.30
215.90
250.30
18.40
1.60
470.20
1,641.70
7,344.10
(1,449.10)
(327.70)
(71.90)
(60.50)
(8.40)
(87.80)
(2,005.40)
(1,347.60)
(602.30)
(71.90)
(50.70)
(22.70)
(115.00)
(2,210.20)
(545.30)
(30.00)
(13.30)
(280.80)
(1,948.10)
(27.20)
(24.00)
(195.70)
(14.10)
(262.30)
(1,924.10)
(37.50)
(22.00)
(196.50)
(2,489.10)
(2,456.50)
(4,494.50)
(4,666.70)
2,778.80
2,677.40
401.40
294.30
2,202.60
14.80
(6,114.30)
5,991.40
2,790.20
(11.40)
396.20
255.20
2,202.60
(11.30)
(6,042.40)
5,873.20
2,673.50
3.90
2,778.80
2,677.40
Current assets
Inventories
Other financial assets
Trade and other receivables
Derivatives
Current tax assets
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Borrowings
Partnership liability to M & S Uk pension scheme
Derivative financial instruments
Provisions
Current tax liabilities
Net working capital = Current assets minus current liabilities
Non-current liabilities
Retirement benefit deficit
Trade & Other payables
Borrowings & other financial liabilities
Derivatives financial instruments
Provisions
Deferred tax liabilities
Total liabilities
Net assets
Equity
Issued Share Capital
Share Premium account
Capital redemption reserve
Hedging reserves
Other reserves
Retained earnings
Total attributable to equity shareholders of the company
Non-controlling interests
Total Equity
6

7. KINGFISHER
CONSOLIDATED BALANCE SHEET
AS AT 28/01/2012
£ millions
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Investment Property
Investments in joint ventures & associates
Post employment benefits
Deferred tax assets
Derivatives
Other receivables
2011/12 2010/11
2,397.00
123.00
3,667.00
55.00
271.00
25.00
23.00
66.00
17.00
6,644.00
2,395.00
86.00
3,632.00
32.00
259.00
27.00
62.00
15.00
6,508.00
1,844.00
531.00
26.00
1.00
587.00
2,989.00
9,633.00
1,791.00
513.00
15.00
45.00
731.00
3,095.00
9,603.00
(2,356.00)
(367.00)
(6.00)
(305.00)
(16.00)
(3,050.00)
(2,519.00)
(196.00)
(11.00)
(372.00)
(27.00)
(3,125.00)
(61.00)
(30.00)
(121.00)
(375.00)
(8.00)
(269.00)
(43.00)
(40.00)
(856.00)
(76.00)
(577.00)
(17.00)
(238.00)
(52.00)
(58.00)
(1,018.00)
(3,906.00)
(4,143.00)
5,727.00
5,460.00
Share Capital
Share Premium
Own Shares held
Retained earnings
Other reserves
Total attributable to equity shareholders of the
company
Non-controlling interests
372.00
2,199.00
(134.00)
2,869.00
413.00
371.00
2,194.00
(42.00)
2,390.00
539.00
5,719.00
8.00
5,452.00
8.00
Total Equity
5,727.00
5,460.00
Current assets
Inventories
Trade and other receivables
Derivatives
Current tax assets
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Borrowings
Derivatives
Current tax liabilities
Provisions
Net working capital = Current assets minus current
liabilities
Non-current liabilities
Other payables
Borrowings
Derivatives
Deferred tax liabilities
Provisions
Post employment benefits
Total liabilities
Net assets
Equity
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8. REUTERS GROUP
CONSOLIDATED BALANCE SHEET
AS AT 31/12/2012
2012
2011
1,423.00
1,682.00
8,135.00
16,256.00
360.00
515.00
50.00
28,421.00
1,509.00
1,640.00
8,471.00
15,932.00
425.00
535.00
50.00
28,562.00
1,301.00
1,835.00
72.00
641.00
3,849.00
302.00
4,151.00
422.00
1,984.00
100.00
641.00
3,147.00
767.00
3,914.00
32,572.00
32,476.00
Current Indebtedness
Payables, Accruals & Provisions
Deferred Revenue
Other financial liabilities
Current tax liabilities Excluding Liabilities
Associated with Assets Held for Sale
Liabilities Associated with Assets Held for Sale
(1,008.00)
(2,633.00)
(1,224.00)
(95.00)
(4,960.00)
(434.00)
(2,675.00)
(1,379.00)
(81.00)
(4,569.00)
(35.00)
(35.00)
Current Liabilities
(4,995.00)
(4,604.00)
(844.00)
(690.00)
(6,223.00)
(2,514.00)
(37.00)
(1,305.00)
(7,160.00)
(2,513.00)
(27.00)
(1,422.00)
(15,074.00)
(15,726.00)
Capital
Retained earnings
Accumulated Other Comprehensive Loss
Total attributable to equity shareholders of the company
Non-controlling interests
Total Equity
(10,371.00)
(8,311.00)
1,537.00
(17,145.00)
(353.00)
(17,498.00)
(10,288.00)
(7,633.00)
1,516.00
(16,405.00)
(345.00)
(16,750.00)
Total Liabilities and Equity
(32,572.00)
(32,476.00)
£ millions
Non-current assets
Computer Hardware & Other Property, Net
Computer Software, Net
Other Identifiable Intangible Assets, Net
Goodwill
Other Financial assets
Other Non-current Assets
Deferred tax assets
Current assets
Cash and cash equivalents
Trade and other receivables
Other financial assets
Prepaid Expenses & Other current assets
Current assets Excluding Assets Held for Sale
Assets Held for Sale
Current Assets
Total assets
Liabilities and Equity
Net working capital = Current assets minus current liabilities
Non-current liabilities
Long-Term Indebtedness
Provisions & Other Non-current liabilities
Other financial Liabilities
Deferred tax liabilities
Total liabilities
Equity
8

9. ITV
CONSOLIDATED BALANCE SHEET
AS AT 31/12/2012
2012
Assets and Liabilities
Non-current assets
Gross Property, plant and equipment
Accumulated Depreciation
Net Property, plaint and equipment
Goodwill
Long-Term Investments
Deferred tax Assets, Long term
Other Iong-term assets
Other financial assets
325.00
(169.00)
156.00
751.00
253.00
93.00
162.00
36.00
1,451.00
Current assets
Cash and Equivalents
Trading Asset Securities
690.00
-
Total Cash & Short term investments
Accounts receivable
Other receivables
Total receivables
Inventory
Prepaid expenses
Other current assets
Total current assets
690.00
278.00
43.00
321.00
96.00
58.00
179.00
1,344.00
Total assets
2,795.00
Current Liabilities
Current portion of Capital Lease Obligations
Other current liabilities
Total Current liabilities
Net working capital = Current assets minus current liabilities
(7.00)
(699.00)
(706.00)
638.00
Non Current liabilities
Borrowings
Provisions
Other Non-current liabilities
Other liabilities
Total liabilities
Net assets
(632.00)
(12.00)
(613.00)
N/A
(1,257.00)
(1,963.00)
832.00
Equity:
Common Stock
Additional Paid in Capital
Retained earnings
Comprehensive Income & Other
Total Common Equity
Minority Interest
Total Equity
Total liabilities and Equity
9
391.00
122.00
1.00
303.00
817.00
15.00
832.00
2,795.00

10. TESCO
CONSOLIDATED BALANCE SHEET
AS AT 25/02/2012
£ millions
Non-current assets
Goodwill & Other intangible assets
Property, plant and equipment
Investment Property
Investments in joint ventures & associates
Other investments
Loans & advances to customers
Derivatives financial instruments
Deferred tax assets
2012
4,618.00
25,710.00
1,991.00
423.00
1,526.00
1,901.00
1,726.00
23.00
37,918.00
Current assets
Inventories
Trade and other receivables
Loans & advances to customers
Derivative financial instruments
Current tax assets
Short-term investments
Cash and cash equivalents
3,598.00
2,657.00
2,502.00
41.00
7.00
1,243.00
2,305.00
12,353.00
Assets of the disposal group and non-current assets classified as held for sale
510.00
12,863.00
Total assets
50,781.00
Current liabilities
Trade and other payables
(11,234.00)
Financial Liabilities
Borrowings
Derivative financial instruments & other liabilities
Customer deposits & deposits by banks
Current tax liabilities
Provisions
Liabilities of the disposal group classified as held
for sale
Net current liabilities
Net working capital = Current assets
minus current liabilities
(1,838.00)
(128.00)
(5,465.00)
(416.00)
(99.00)
(19,180.00)
(69.00)
(6,386.00)
(6,386.00)
Non-current liabilities
Financial liabilities
Borrowings
Derivative financial instruments & other liabilities
Post employment benefits
Deferred tax liabilities
Provisions
Total non current liabilities
Net assets
(9,911.00)
(688.00)
(1,872.00)
(1,160.00)
(100.00)
(13,731.00)
17,801.00
Equity
Share Capital
Share Premium
Other reserves
Retained earnings
Equity attributable to owner's of the parent
Non-controlling interests
Total Equity
10
402.00
4,964.00
40.00
12,369.00
17,775.00
26.00
17,801.00