Order of Liquidity Under this method, a company organizes current and fixed assets in the balance sheet in the order of liquidity and the degree of ease by which it is converts converted into cash.On the asset side, we will write most liquid assets at first i.e. cash in hand, cash at bank and so onRead more
Order of Liquidity
Under this method, a company organizes current and fixed assets in the balance sheet in the order of liquidity and the degree of ease by which it is converts converted into cash.On the asset side, we will write most liquid assets at first i.e. cash in hand, cash at bank and so on and further. In the end, we will write goodwill.
Liabilities are presented based on the order of urgency of payment. On the liabilities side, we start from short-term liabilities for example outstanding expenses, creditors and bill payable, and so on. In the end, we write capital adjusted with net profit and drawings if any.
This approach is generally used by sole traders and partnerships firms. The following is the format of Balance sheet in order of liquidity:
Order of Permanence
Under this method, while preparing a balance sheet by a company assets are listed according to their permanency. Permanent assets are shown at first and then less permanent assets are shown afterward. On the assets side of the balance sheet starts with more fixed and permanent assets i.e. it begins with goodwill, building, machinery, furniture, then investments and ends with cash in hand as the last item.
The fixed or long-term liabilities are shown first under the order of permanence method, and the current liabilities are listed afterward. On the liabilities side, we start from capital, Reserve and surplus, Long term loans and end with outstanding expenses.
The following is the format of the Balance sheet in order of permanence:
Such order or arrangement of balance sheet items are refer as ‘Marshalling of Balance Sheet’.
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Meaning of Workmen's Compensation Reserve Workmen compensation reserve is a reserve created to compensate the labourers and employees of a firm in case of an uncertain future event in the line with their work. For example, if a labourer or group of labourers get injured seriously while working on thRead more
Meaning of Workmen’s Compensation Reserve
Workmen compensation reserve is a reserve created to compensate the labourers and employees of a firm in case of an uncertain future event in the line with their work. For example, if a labourer or group of labourers get injured seriously while working on the premises of the firm, then they will be compensated from the money kept aside in the workmen’s compensation reserve.
Workmen’s compensation reserve is created using the profits of a business. The journal entry for the creation of workmen compensation reserve is as follows:
When a claim arises, the claim amount is transferred to Provision for workmen compensation claim A/c
Treatment of workmen compensation reserve in revaluation account
At the time of admission, retirement or death of partner or change in profit sharing ratio, the reserve is distributed among the old or existing partners or kept intact.
Workmen’s compensation reserve is also distributed among the old or existing partners subject to the claim arising on the reserve.
Here are the three situations:
The revaluation account comes into the picture only when the claim is more than the amount available in the reserve. For example, the claim is Rs. 20,000 but the amount in the reserve is only Rs. 15,000.
In such a case, the excess claim will be met by debiting the revaluation account.
The journal will as given below:
Since the revaluation account is debited, it is a loss and this loss will be written from old or existing partners’ capital in the old profit sharing ratio. The journal entry is given below:
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