Financial Statement Analysis PDF

## Financial Statements ### Chapter Objectives - Understand the meaning, use and importance of financial statements. - Nature and limitations of financial statements. - Objectives of financial statements. - Types of financial statements. - Form and contents of income statement and balance sheet. -...

## Financial Statements ### Chapter Objectives - Understand the meaning, use and importance of financial statements. - Nature and limitations of financial statements. - Objectives of financial statements. - Types of financial statements. - Form and contents of income statement and balance sheet. - Basic knowledge of published accounts. - Characteristics of ideal financial statements. ### Introduction Accounting is the process of identifying, measuring and communicating economic information to permit informed judgements and decisions by users of the information. It involves recording, classifying and summarizing various business transactions. The end products of business transactions are the financial statements comprising primarily the position statement or the balance sheet and the income statement or the profit and loss account. These statements are the outcome of summarising process of accounting and are, therefore the sources of information on the basis of which conclusions are drawn about the profitability and the financial position of a concern. Financial statements are the basis for decision making by the management as well as all other outsiders who are interested in the affairs of the firm such as investors, creditors, customers, suppliers, financial institutions, employees, potential investors, Government and the general public. The analysis and interpretation of financial statements depend upon the nature and type of information available in these statements. ### Meaning of Financial Statements A financial statement is a collection of data organised according to logical and consistent accounting procedures. Its purpose is to convey an understanding of some financial aspects of a business firm. It may show a position at a moment in time, as in the case of a balance sheet, or may reveal a series of activities over a given period of time, as in the case of an income statement. Thus, the term 'financial statements' generally refers to the two statements: (i) the position statement or the balance sheet; and (ii) the income statement or the profit and loss account. These statements are used to convey to management and other interested outsiders the profitability and financial position of a firm. Financial statements are the outcome of summarising process of accounting. In the words of John N. Myer, "The financial statements provide a summary of the accounts of a business enterprise, the balance sheet reflecting the assets, liabilities and capital as on a certain date and the income statement showing the results of operations during a certain period." Financial statements are prepared as an end result of financial accounting and are the major sources of financial information of an enterprise. Smith and Asburne define financial statements as, "the end product of financial accounting in a set of financial statements prepared by the accountant of a business enterprise-that purport to reveal the financial position of the enterprise, the result of its recent activities, and an analysis of what has been done with earnings." Financial statements are also called financial reports. In the words of Anthony “ Financial statements, essentially, are interim reports, presented annually and reflect a division of the life of an enterprise into more or less arbitrary accounting period-more frequently a year." ### Nature of Financial Statements The financial statements are prepared on the basis of recorded facts. The recorded facts are those which can be expressed in monetary terms. The statements are prepared for a particular period, generally one year. The transactions are recorded in a chronological order, as and when the events happen. The accounting records and financial statements prepared from these records are based on historical costs. The financial statements, by nature, are summaries of the items recorded in the business and these statements are prepared periodically, generally for the accounting period. The American Institute of Certified Public Accountants states the nature of financial statements as "Financial Statements are prepared for the purpose of presenting a periodical review of report on progress by the management and deal with the status of investment in the business and the results achieved during the period under review. They reflect a combination of recorded facts, accounting principles and personal judgements." The American Accounting Association expresses in its statement, "Every corporate statement should be based on accounting principles which are sufficiently uniform, objective and well understood to justify opinions as to the condition and progress of business enterprise. Its basic assumption was that the purpose of periodic financial statements of a corporation is to furnish information that is necessary for the formation of dependable judgements." According to John N.Myer, "The financial statements are composed of data which are the result of a combinations of (1) recorded facts concerning the business transactions, (2) conventions adopted to facilitate the accounting technique, (3) postulates, or assumptions made to and (4) personal judgements used in the application of the conventions and postulates." The following points explain the nature of financial statements : 1. Recorded Facts. The term 'recorded facts’refers to the data taken out from the accounting records. The records are maintained on the basis of actual cost data. The original cost or historical cost is the basis of recording various transactions. The figures of various accounts such as cash in hand, cash in bank, bills receivables, sundry debtors, fixed assets etc. are taken as per the figures recorded in the accounting books. The assets purchased at different times and at different prices are put together and shown at cost prices. As recorded facts are not based on replacement costs, the financial statements do not show current financial condition of the concern. 2. Accounting Conventions. Certain accounting conventions are followed while preparing financial statements. The convention of valuing inventory at cost or market price, whichever is lower, is followed. The valuing of assets at cost less depreciation principle for balance sheet purposes is followed. The convention of materiality is followed in dealing with small items like pencils, pens, postage stamps, etc. These items are treated as expenditure in the year in which they are purchased even though they are assets in nature. The stationery is valued at cost and not on the principle of cost or market price whichever is less. The use of accounting conventions makes financial statements comparable, simple and realistic. 3. Postulates. The accountant makes certain assumptions while making accounting records. One of these assumptions is that the enterprise is treated as a going concern. The other alternative to this postulate is that the concern is to be liquidated, this, is untenable if management shows an intention to liquidate the concern. So the assets are shown on a going concern basis. Another important assumption is to presume that the value of money will remain the same in different periods. Though there is a drastic change in purchasing power of money the assets purchased at different times will be shown at the amount paid for them. While preparing profit and loss account, the revenue is treated in the year in which the sale was undertaken even though the sale price may be received in a number of years. The assumption is known as realisation postulate. 4. Personal Judgements. Even though certain standard accounting conventions are followed in preparing financial statements but still personal judgement of the accountant plays an important part. For example, in applying the cost or market value whichever is less to inventory valuation the accountant will have to use his judgement in computing the cost in a particular case. There are a number of methods for valuing stock, viz; last in first out, first in first out, average cost method, standard cost, base stock method, etc. The accountant will use one of these methods for valuing materials. The selection of depreciation method, to use one of the several methods for estimating uncollectable debts, to determine the period for writing off intangible assets are some of the examples where judgement of the accountant will play an important role in choosing the most appropriate course of action. ### Objectives of Financial Statements Financial statements are the sources of information on the basis of which conclusions are drawn about the profitability and financial position of a concern. They are the major means employed by firms to present their financial situation of owners, creditors and the general public. The primary objective of financial statements is to assist in decision making. The Accounting Principles Board of America (APB) states the following objectives of financial statements: (i) To provide reliable financial information about economic resources and obligations of a business firm. (ii) To provide other needed information about changes in such economic resources and obligations. (iii) To provide reliable information about changes in net resources (resources less obligations) arising out of business activities. (iv) To provide financial information that assists in estimating the earning potentials of business. (v) To disclose, to the extent possible, other information related to the financial statements that is relevant to the needs of the users of these statements. ### ANATOMY/TYPES OF FINANCIAL STATEMENTS Financial statements primarily comprise two basic statements: (i) the position statement or the balance sheet; and (ii) the income statement or the profit and loss account However, Generally Accepted Accounting Principles (GAAP) specify that a complete set of financial statements must include: (i) A balance sheet, (ii) An income statement, (iii) A statement of changes in owners' accounts, and (iv) A statement of changes in financial position. Before we discuss the form and contents of these statements, Let us briefly explain the meaning and significance of each of these statements. 1. Balance Sheet. The American Institute of Certified Public Accountants defines Balance Sheet as, "A tabular statement of summary of balances (debits and credits) carried forward after an actual and constructive closing of books of account and kept according to principles of accounting." The purpose of the balance sheet is to show the resources that the company has, i.e., its assets, and from where those resources come from, i.e. its liabilities and investments by owners and outsiders. The balance sheet is one of the important statements depicting the financial strength of the concern. It shows on the one hand the properties that it utilises and on other hand the sources of those properties. The balance sheet shows all the assets owned by the concern and all the liabilities and claims it owes to owners and outsiders. The balance sheet is prepared on a particular date. The right hand side shows properties and assets. Normally there is no particular sequence for showing various assets and liabilities. The Companies Act, 1956 has prescribed a particular form for showing assets and liabilities in the balance sheet for companies registered under this act. These companies are also required to give figures for the previous year alongwith the current year's figures. 2. Income Statement (Or Profit and Loss Account). Income statement is prepared to determine the operational position of the concern. It is a statement of revenues earned and the expenses incurred for earning that revenue. If there is excess of revenues over expenditures it will show a profit and if the expenditures are more than the income then there will be a loss. The income statement is prepared for a particular period, generally a year. When income statement is prepared for the year ending on 31st December 2014 then all revenues and expenditures falling due in that year will be taken into account irrespective of their receipt or payment. The income statement may be prepared in the form of a Manufacturing Account to find out the cost of production, in the form of Trading Account to determine gross profit or gross loss, in the form of a Profit and Loss Account to determine net profit or net loss. A statement of Retained Earnings may also be prepared to show the distribution of profits. 3. Statement of Changes in Owners' Equity (Or Retained Earnings). The term 'owners equity' refers to the claims of the owners of the business (shareholders) against the assets of the firm. It consists of two elements; (i) paid-up share capital, i.e. the initial amount of funds invested by the shareholders; and (ii) retained earnings/ reserves and surplus representing undistributed profits. The statement of changes in owners' equity simply shows the beginning balance of each owner's equity account, the reasons for increases and decreases in each, and its ending balance. However, in most cases, the only owner's equity account that changes significantly is Retained Earnings and hence the statement of changes in owners' equity becomes merely a statement of retained earnings. A statement of retained earnings is also known as Profit and Loss Appropriation Account or Income Disposal Statement. As the name suggests it shows appropriations of earnings. The previous year's balance is first brought forward. The net profit during the current year is added to this balance. On the debit side, appropriations like interim dividend paid, proposed dividend on preference and equity share capital, amounts transferred to debenture redemption fund, capital redemption funds, general reserve, etc. are shown. The balance in this account will show the amount of profit retained in hand and carried forward. The appropriations cannot be more than the profits so this account will not have a debit balance. There cannot be appropriations without profits. 4. Statement of Changes in Financial Position. The basic financial statements, i.e., the balance sheet and the profit and loss account or income statement of a business reveal the net effect of the various transactions on the operational and financial position of the company. The balance sheet gives a static view of the resources of a business and the uses to which these resources have been put at a certain point of time. The profit and loss account in a general way, indicates the resources provided by operations. But there are many transactions that do not operate through profit and loss account. Thus, for a better understanding another statement called statement of changes in financial position has to be prepared to show the changes in assets and liabilities from the end of one period to the end of another point of time. The objective of this statement is to show the movement of funds (working capital or cash) during a particular period. The statement of changes in financial position may take any of the following two forms: (a) Funds Flow Statement. The funds flow statement is designed to analyse the changes in the financial condition of a business enterprise between two periods. The word 'Fund' is used to denote working capital. This statement will show the sources from which the funds are received and the uses to which these have been put. This statement enables the management to have an idea about the sources of funds and their uses for various purposes. This statement helps the management in policy formulation and performance appraisal. (b) Cash Flow Statement. A statement of changes in the financial position of a firm on cash basis is called Cash Flow Statement. It summarises the causes of changes in cash position of a business enterprise between dates of two balances sheets. This statement is very much similar to the statement of changes in working capital, i.e., funds flow statement. A cash flow statement focuses attention on cash changes only. It describes the sources of cash and its uses. The preparation and use of fund flow and cash flow statements have been discussed in detail as separate chapters later in the book. However, the form and content of the other financial statements has been explained in this chapter. ### Form and Contents of Balance Sheet There is no specific form for the preparation of Balance Sheet in the case of proprietory concerns and partnership firms. The balance sheet is generally divided into three parts, i.e. assets, liabilities and capital The balance sheet is usually prepared in a horizontal form. The assets are shown on the right hand side and capital and liabilities are shown on the left hand side. The order of assets and liabilities is either (i) on liquidity basis or (ii) on permanency basis. When balance sheet is prepared on liquidity basis then more liquid assets like cash in hand, cast at bank, investments, etc., are shown first and the least liquid assets will be shown at last. On liabilities side, the liabilities to be paid in the short period are shown first, long-term liabilities next and capital on the last. The liquidity form is suitable for the banking and other financial companies. When balance sheet is prepared on permanency basis, on assets side fixed assets are shown first and liquid assets are shown at last. On liabilities side the capital is shown first, 'long-term liabilities next, short term and current liabilities in the last. The Companies Act has adopted permanency form for preparing balance sheet. The Companies Act, 1956 has prescribed a form for the preparation of Balance Sheet. This form is set out in Part I of Schedule VI or as near thereto as circumstances admit. Section 211 (i) states that every balance sheet of a company shall give a true and fair view of the state of affairs of the company as at the end of the financial year and shall, subject to the provisions of the sections, be in the form set out in Part I of Schedule VI, or as near thereto as circumstances admit or in such other form as may be approved by the Central Government either generally or in particular case; and in preparing the balance sheet due regard shall be had, as far as may be to be general instructions for preparation of balance sheet under the heading "Notes" at the end of that Part. Provided that nothing contained in this sub-section shall apply to any insurance or banking company or any company engaged in the generation or supply of electricity or to any other class of company for which a form of balance sheet has been specified in or under the Act governing such class of companies. Ministry of Corporate Affairs (MCA) has revised schedule VI of the Companies Act, 1956 and this new schedule is effective from 1st April 2011. While both vertical and horizontal forms of presentation were allowed under old schedule, only vertical form is allowed under Revised Schedule VI. The new form of Balance Sheet as per revised schedule is as follows: #### ScheduleVI–PartI #### Form of Balance Sheet Name of the Company. Balance Sheet as at | Particulars | Note. | Figures as at the end of current reporting period | Figures as at the end of previous reporting period | | :---------------------------------------------------------------------- | :----: | :----------------------------------------------: | :----------------------------------------------: | | L. EQUITY AND LIABILITIES | | | | | 1. Shareholder's Funds | | | | | (a) Share Capital | | | | | (b) Reserve and Surplus | | | | | (c) Money received against share warrants | | | | | (2) Share application money pending allotment | | | | | (3) Non Current Liabilities | | | | | (a) Long-term borrowings | | | | | (b) Deferred tax liabilities (Net) | | | | | (c) Other long term liabilities | | | | | (d) Long term provisions | | | | | (4) Current Liabilities | | | | | (a) Short term borrowings | | | | | (b) Trade payables | | | | | (c) Other current liabilities | | | | | (d) Short-term provisions | | | | | II. ASSETS | | | | | (1) Non-current Assets | | | | | (a) Fixed assets | | | | | (i) Tangible assets | | | | | (ii) Intangible assets | | | | | (iii) Capital work-in-progress | | | | | (iv) Intangible assets under development | | | | | (b) Non-current investments | | | | | (c) Deferred tax assets (net) | | | | | (d) Long term loans and advances | | | | | (e) Other non-current assets | | | | | (2) Current Assets | | | | | (a) Current investments | | | | | (b) Inventories | | | | | (c) Trade receivables | | | | | (d) Cash and cash equivalents | | | | | (e) Short-term loans and advances | | | | | (f) Other current assets | | | | | | | **Total** | **Total** | #### General Instructions for Preparation of Balance Sheet 1. An asset shall be classified as current when it satisfies any of the following criteria: (a) it is expected to be realized in, or is intended for sale or consumption in, the company's normal operating cycle; (b) it is held primarily for the purpose of being traded; (c) it is expected to be realized within twelve months after the reporting date; or (d) it is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting date. All other assets shall be classified as non-current. 2. An operating cycle is the time between the acquisition of assets for processing and their realization in cash or cash equivalents. Where the normal operating cycle cannot be identified, it is assumed to have a duration of 12 months. 3. A liability shall be classified as current when it satisfies any of the following criteria. (a) it is expected to be settled in the company's normal operating cycle; (b) it is held primarily for the purpose of being traded; (c) it is due to be settled within twelve months after the reporting date; or (d) the company does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification. All other liabilities shall be classified as non-current. 4. A receivable shall be classified as a 'trade receivable' if it is in respect of the amount due on account of goods sold or services rendered in the normal course of business. 5. A payable shall be classified as a 'trade payable' if it is in respect of the amount due on account of goods purchased or services received in the normal course of business. 6. A company shall disclose the following in the notes to accounts: A. Share Capital For each class of share capital (different classes of preference shares to be treated separately): (a) the number and amount of shares authorised; (b) the number of shares issued, subscribed and fully paid, and subscribed but not fully paid; (c) par value per share; (d) a reconciliation of the number of shares outstanding at the beginning and at the end of the reporting period; (e) the rights, preferences and restrictions attaching to each class of shares including restrictions on the distribution of dividends and the repayment of capital; (f) shares in respect of each class in the company held by its holding company or its ultimate holding company including shares held by or by subsidiaries or associates of the holding company or the ultimate holding company in aggregate; (g) shares in the company held by each shareholder holding more than 5 percent shares specifying the number of shares held; (h) shares reserved for issue under options and contracts, commitments for the sale of shares/ disinvestment, including the terms and amounts; (i) For the period of five years immediately preceding the dates as at which the Balance Sheet is prepared: - Aggregate number and class of shares allotted as fully paid up pursuant to contract(s) without paymnet being received in cash. - Aggregate number and class of shares allotted as fully paid up by way of bonus shares. - Aggregate number and class of shares bought back. (j) Terms of any securities convertible into equity/preference shares issued along with the earliest date of conversion in descending order starting from the farthest such date. (k) Calls unpaid (showing aggregate value of calls unpaid by directors and officers) (l) Forfeited shares (amount originally paid up) B. Reserves and Surplus (i) Reserves and surplus shall be classified as : (a) Capital Reserves; (b) Capital Redemption Reserve; (c) Securities Premium Reserve; (d) Debenture Redemption reserve; (e) Revaluation Reserve; (f) Share Options Outstanding Account; (g) Other Reserves-(Specify the nautre and purpose of each reserve and the amount in respect thereof); (h) Surplus i.e. balance in Statement of Profit and Loss disclosing allocations and appropriations such as dividend, bonus shares and transfer to/from reserves etc. (Additions and deductions since last balance sheet to be shown under each of the specified heads) (ii) A reserve specifically represented by earmarked .investments shall be termed as a 'fund'. (iii) Debit balance of statement of profit and loss shall be shown as a negative figure under the head 'Surplus'. Similarly, the balance of 'Reserves and Surplus' after adjusting negative balance of surplus, if any, shall be shown under the head 'Reserves and Surplus' even if the resulting figure is in the negative. C. Long-Term Borrowings (i) Long-term borrowings shall be classified as : (a) Bonds/debentures. (b) Term loans - from banks. - from other parties. (c) Deferred payment liabilities. (d) Deposits. (e) Loans and advances from related parties. (f) Long term maturities of finance lease obligations (g) Other loans and advances (specify nature). (ii) Borrowings shall further be sub-classified as secured and unsecured. Nature of security shall be specified separately in each case. (iii) Where loans have been guaranteed by directors or others, the aggregate amount of such loans under each head shall be disclosed. (iv) Bonds/debentures (along with the rate of interest and particulars of redemption or conversion, as the case may be) shall be stated in descending order of maturity or conversion, starting from farthest redemption or conversion date, as the case may be. Where bonds/debentures are redeemable by installments, the date of maturity for this purpose must be reckoned as the date on which the first installment becomes due. (v) Particulars of any redeemed bonds/debentures which the company has power to reissue shall be disclosed. (vi) Terms of repayment of term loans and other loans shall be stated. (vii) Period and amount of continuing default as on the balance sheet date in repayment of loans and interest, shall be specified separately in each case. D. Other Long Term Liabilities Other long term liabilities shall be classified as : (a) Trade payables (b) Others E. Long-term Provisions The amounts shall be classified as : (a) Provision for employee benefits. (b) Others (specify nature). F. Short-term Borrowings (i) Short-term borrowings shall be classified as : (a) Loans repayable on demand - from banks - from other parties. (b) Loans and advances from related parties. (c) Deposits. (d) Other loans and advances (specify nature). (ii) Borrowings shall further be sub-classified as secured and unsecured. Nature of security shall be specified spearately in each case. (iii) Where loans have been guaranteed by directors or others, the aggregate amount of such loans under each head shall be disclosed. (iv) Period and amount of default as on the balance sheet date in repayment of loans and interest, shall be specified separately in each case. G. Other Current Liabilities The amounts shall be classified as : (a) Current maturities of long-term debt; (b) Current maturities of finance lease obligations; (c) Interest accrued but not due on borrowings; (d) Interest accrued and due on borrowings; (e) Income received in advance; (f) Unpaid dividends (g) Application money received for allotment of securities and due for refund and interest accrued thereon. Share application money includes advances towards allotment of share capital. The terms and conditions including the number of shares proposed to be issued, the amount of premium, if any, and the period before which shares shall be allotted shall be disclosed. It shall also be disclosed whether the company has sufficient authorised capital to cover the share capital amount resulting from allotment of shares out of such share application money. Further, the period for which the share application money has been pending beyond the period for allotment as mentioned in the document inviting application for shares along with the reason for such share application money being pending shall be disclosed. Share application money not exceeding the issued capital and to the extent not refundable shall be shown under the head Equity and Share Application Money to the extent refundable i.e., the amount in excess of subscription or in case the requirements of minimum subscription are not met, shall be separately shown under 'Other current liabilities' (h) Unpaid matured deposits and interest accrued thereon (i) Unpaid matured debentures and interest accrued thereon (j) Other payables (specify nature); H. Short-term Provisions The amounts shall be classified as : (a) Provision for employee benefits (b) Others (specify nature). I. Tangible Assets (i) Classification shall be given as : (a) Land (b) Buildings (c) Plant and Equipment (d) Furniture and Fixtures (e) Vehicles. (f) Office equipment (g) Others (specify natutre) (ii) Assets under lease shall be spearately specified under each class of asset. (iii) A reconciliation of the gross and net carrying amounts of each class of assets at the beginning and end of the reporting period showing additions, disposals, acquisitions through business combinations and other adjustments and the related depreciation and impairment losses/reversals shall be disclosed separately. (iv) Where sums have been written off on a reduction of capital or revaluation of assets or where sums have been added on revaluation of assets, every balance sheet subsequent to date of such write-off, or addition shall show the reduced or increased figures as applicable and shall by way of a note also show the amount of the reduction or increase as applicable together with the date thereof for the first five years subsequent to the date of such reduction or increase. J. Intangible Assets (i) Classification shall be given as : (a) Goodwill (b) Brands/trademarks. (c) Computer software (d) Mastheads and publishing titles (e) Mining rights. (f) Copyrights, and patents and other intellectual property rights, services and operating rights. (g) Recipes, formulae, models, designs and prototypes. (h) Licences and franchise. (i) Others (specify nature). (ii) A reconciliation of the gross and net carrying amounts of each class of assets at the beginning and end of the reporting period showing additions, disposals, acquisitions through business combinations and other adjustments and the related amortisation and impairment losses/reversals shall be disclosed separately. (iii) Where sums have been written off on a reduction of capital or revaluation of assets or where sums have been added on revaluation of assets, every balance sheet subsequent to date of such write-off, or addition shall show the reduced or increased figures as applicable and shall by way of a note also show the amount of the reduction or increase as applicable together with the date thereof for the first five years subsequent to the date of such reduction or increase. K. Non-current Investments (i) Non-current investments shall be classified as trade investments and other investments are further classified as : (a) Investment in property; (b) Investments in equity instruments; (c) Investments in preference shares; (d) Investments in Government or trust securites; (e) Investments in debentures or bonds; (f) Investments in Mutual Funds; (g) Investments in partnership firms; (h) Other non-current investments (specify nature). Under each classification, details shall be given of names of the bodies corporate (indicating separately whether such bodies are (i) subsidiaries, (ii) associates, (iii) joint ventures, or (iv) controlled special purpose entities) in whom investments have been made and the nature and extent of the investment so made in each such body corporate (showing separately investments which are partly-paid). In regard to investments in the capital of partnership firms, the names of the firms (with the names of all their partners, total capital and the shares of each partner) shall be given. (ii) Investments carried at other than at cost should be separately stated specifying the basis for valuation thereof. (iii) The following shall also be disclosed : (a) Aggregate amount of quoted investments and market value thereof; (b) Aggregate amount of unqouted investments; (c) Aggregate provision for diminution in value of investments L. Long-term Loans and Advances (i) Long-term loans and advances shall be classified as: (a) Capital Advances; (b) Security Deposits; (c) Loans and advances to related parties (giving details thereof); (d) Other loans and advances (speficy nature). (ii) The above shall also be separately sub-classified as: (a) Secured, considered good; (b) Unsecured, considered good; (c) Doubtful. (iii) Allowance for bad and doubftul loans and advances shall be disclosed under the relevant heads separately. (iv) Loans and advances due by directors or other officers of the company or any of them either severally or jointly with any other persons or amounts due by firms or private companies respectively in which any director is a partner or a director or a member should be separately stated. M. Other Non-current Assets Other non-current assets shall be classified as : (i) Long Term Trade Receivables (including trade receivables on deferred credit terms ); (ii) Others (specify nature) (iii) Long term Trade Receivables, shall be sub-classified as : (i) (a) Secured, considered good; (b) Unsecured considered good; (c) Doubtful (ii) Allowance for bad and doubtful debts shall be disclosed under the relevant heads separately. (iii) Debts due by directors or other officers of the company or any of them either severally or jointly with any other person or debts due by firms or private companies respectively in which any director is a partner or a director or a member should be separately stated. N. Current Investments (i) Current investments shall be classified as : (a) Investments in Equity instruments; (b) Investments in Preference Shares; (c) Investments in governmentf or trust securities; (d) Inverstments in debentures or bonds; (e) Investments in Mutual Funds; (f) Investments in partnership firms; (g) Other investments (specify nature). Under each classification, details shall be given of names of the bodies corporate (indicating separately whether such bodies are (i) subsidiaries, (ii) assciates, (iii) joint ventures, or (iv) controlled special purpose entities) in whom investments have been made and the nature and extent of the investment so made in each such body corporate (showing separately investments which are partly-paid). In regard to investments in the capital of partnership firms, the names of the firm s(with the names of all their partners, total capital and the shares of each partner) shall be given. (ii) The following shall also be disclosed : (a) The basis of valuation of individual investments (b) Aggregate amount of quoted investments and market value thereof; (c) Aggregate amount of unquoted investments; (d) Aggregate provision made for diminution in value of investments. O. Inventories (i) Inventories shall be classified as: (a) Raw materials; (b) Work-in-progress; (c) Finished goods; (d) Stock-in-trade (in respect of goods acquired for trading); (e) Stores and spares; (f) Loose tools; (g) Others (specify nature). (ii) Goods-in-transit shall be disclosed under the relevant sub-head of inventories. (iii) Mode of valuation shall be stated. P. Trade Receivables (i) Aggregate amount of Trade Receivables outstanding for a period exceeding six months from the date they are due for payment should be separately stated. (ii) Trade receivables shall be sub-classified as : (a) Secured, considered good; (b) Unsecured considered good; (c) Doubtful. (iii) Allowance for bad and doubtful debts shall be disclosed under the relevant heads separately. (iv) Debts due by directors or other officers of the company or any of them either severally or jointly with any other person or debts due by firms or private companies respectively in which any director is a partner or a director or a member should be separately stated. Q. Cash and Cash Equivalents (i) Cash and cash equivalents shall be classified as : (a) Balances with banks; (b) Cheques, drafts on hand; (c) Cash on hand; (d) Others (specify nature). (ii) Earmarked balances with banks (for example, for unpaid dividend) shall be separately stated. (iii) Balances with banks to the extent held as margin money or security against the borrowings, guarantees, other commitments shall be disclosed separately. (iv) Repatriation restrictions, if any, in respect of cash and bank balances shall be separately stated. (v) Bank deposits with more than 12 months maturity shal be disclosed separately. R. Short-term Loans and Advances (i) Short-term loans and advances shall be classified as : (a) Loans and advances to related parties (giving details thereof); (b) Others (specify nature). (ii) The above shall also be sub-classified as : (a) Secured, considered good; (b) Unsecured, considered good; (c) Doubtful. (iii) Allowance for bad and doubtful loans and advances shall be disclosed under the relevant heads separately. (iv) Loans and advances due by directors or other officers of the company or any of them either severally or jointly with any other person or amounts due by firms or private companies respectively in which any director is a partner or a director or a member shall be separately stated