Balance bought forward from previous year

#1
How to interpret balance bought forward from previous year viz a viz Networth?
Here is a PL statement http://www.grasim.com/investors/financials/profit_loss_account.htm
The co makes a PAT 2092 and then mentions BALANCE BOUGHT FORWARD from previous year 2180 and hence PROFIT Available for Appropriation 4278 .
I dont understand what is this BALANCE BOUGHT FORWARD FROM PREVIOUS YEAR , then what is the idea of RESERVES ??? Should everything be clubbed as the reservere ?
And what is this PROFIT AVAILABLE FOR Appropriation ?
Please explain
 

adityasaraf007

Well-Known Member
#2
"Balance brought forward from previous year" means the opening balance of Profit and Loss a/c.

When you look at the appropriations, the last item is Balance carried to Balance Sheet, this means the Closing Balance of Profit and Loss a/c for the year.

For FY 09, Balance carried forward to Balance Sheet is 2180.97, so this year the same amout has been brought forward.

Similarly for FY 08 the amt is 1064.41, for FY 07 it is 965.33 and for FY 06 it is 878.37.


Reserve means the total value created by the company for its shareholders. Profit and Loss a/c is a part of reserves.

Regarding clubbing of Profit and Loss a/c with General Reserve, different companies follow different approach. Some transfer a major portion of P/L to General Reserve and some like to keep the Balance in P/L a/c itself.

However, every company is required to transfer a minimum amount to General Reserve, because of Statutory provisions mentioned in Companies Act. This is based on the amount of dividend declared by the company.


Profit available for appropriation means the amount that is available to its shareholders.

:)
 
#3
Hi aditya ,

Thank you for the reply , are you from accounting background ?

I have few questions now .

Reserve is the total amount created for shareholders . Hence we compute the book value / networth using the reserves + equity capital and dividing by the no: of share holders .

If only Profit available for appropriation is available to its shareholders and no the general reserve amount , then aren't we much poorer ?

Another person told me like the amounts shown under Reserves & Surplus may include Securities premium, Capital reserves, accumulated Revenue Reserves and Profit & Loss Account balance. Revenue Reserves and Profit & Loss Account balance represent retained profits of earlier years ploughed back in the business, allowing growth

So from my understanding the Profit available for appropriation is PART of what shareholders worth . Hence the book value computation using General Reserves indicate correct amount .

In other words suppose the company is gonna just distribute money to its shareholders .... it will take money from P/L and Genreal Reserve everything and distribute . Ofcourse only theoreticlly i am saying ...these amounts will be in inventory investment etc ... hope you get my point ... Its not just the P/L carried forwarded that we own but the general reserve also ...
 
#4
Theoretically the "reserves are available to all shareholders, lenders. But who would have the first right to these reserves in case of liquidation (lets say):

1) Debtors
2) Any other guys (I am not sure)

So only after the debtors have taken their portion would the rest of the reserves be available for shareholders

Also note that in the statement you have provided, 1750.00 CR was transferred to general reserves in FY10, and remaining money is stated as profit after appropriations.

Now this money is maintained in the profit/loss account and will be considered as "funds available" for next year?

Note I am still learning, so if anybody can add to my point 2(who else have a preferred right to reserves in case of liquidation) and my overall understanding please do.