Terms used in Balance Sheet
Share Capital
Both Equity Share Capital and Preference Share Capital are shown under this head.
Information to be disclosed for
a) Authorized Share Capital;
b) Issued Share Capital;
c) Subscribed, Called – up and Paid – up Share Capital.
(i) Fully Paid-up (ii) Not Fully Paid-up
Cash and Cash Equivalents is classified into:
a) Balance with Bank, Unpaid Dividend (and other earmarked balances), Margin money or security against borrowings, guarantees and other commitments etc., Bank Deposits with more than 12 months maturity.
b) Cheques, drafts on hand.
c) Cash in Hand.
d) Others (specify nature).
Deferred Tax Liability or Deferred Tax Asset
1. It is merely a book entry, neither an actual liability nor an actual asset.
2. In a Balance Sheet, either Deferred Tax Liability or Deferred Tax Asset will appear.
Deferred tax
Deferred Tax Liability or Deferred Tax Asset is the amount of tax on difference between Accounting Income and Taxable Income.
Accounting Income is calculated according to the Accounting Concepts and Principles.
Taxable income is determined on the basis of provisions of Income Tax Act.
Deferred Tax Liability:
If Accounting Income is more than the Taxable Income
Lower Taxable Income means lower payment of income tax. At a later date, more income tax will be paid. It means payment of income tax is deferred i.e. a liability will arise. Thus, an entry for Deferred Tax Liability will be passed as follows:
Profit and Loss Dr.
To Deferred Tax Liability
Deferred Tax Asset:
If Accounting Income is less than the Taxable Income
Higher Taxable Income means higher payment of income taxes. At a later date, less income tax will be paid. Thus, an entry for Deferred Tax Asset will be passed as follows:
Deferred Tax Asset Dr.
To Profit and Loss
Effect of Deferred Tax Liability on Calculating Capital Employed
Deferred Tax Liability should be added to Reserves and Surplus because it is not an actual liability but only a notional liability created out of Reserves and Surplus.
On the other hand, Deferred Tax Asset should be deducted from Reserves and Surplus because it is not an actual asset. It has been created by increasing Reserves and Surplus.