Limited Liability Companies: Statement of Financial Position

For this post, I will be touching on the Statement of Financial Position (SoFP for short) for a Limited Liability Company. The format of the SoFP is similar to both Sole Proprietorship and Partnership Accounts, although a little bit different. Before I show you the format of the SoFP, it’s crucial to know few new items that are included into the SoFP.

Intangible Assets: Intangible assets are assets that do not have a “physical” existence. Despite lacking in physical existence, these assets are useful/valuable to the company; therefore, there are treated as an asset in the SoFP. Example of intangible assets are brand (like MacD and Coca-Cola) and proprietary rights.

Proposed Dividend: Dividend that has been proposed (put forward) to the shareholders but the company has yet to pay them. Therefore, proposed dividend is a current liability to the company.

Debenture Loan: I did mention previously that debenture loan is like a bank loan.. this is not totally correct because of the confusion that this might cause you. If you think the explanation later will confuse you more, just understand that debenture loan is like a bank loan. Companies can choose to issue debenture certificates to lenders (the lenders can be anyone like government, other companies, and banks) using the companies’ assets as collateral. The rationale behind this is to bypass the use of bank because of the high interest rate, companies that has strong balance sheet can then choose to raise money from the market by issuing debenture loan (with lower interest rate than bank of course). Debenture loan is a long-term liabilities.

Share Premium Account: This is presented after called-up capital. Share premium account is used when the stock price is higher than the par value. The par value of most stocks are $1 but it can be anything else so do read properly! So if the stock price is $15, then the share premium is $14 ($15-$1) multiply by the number of shares outstanding.

General Reserve: The directors of the company may decide to reinvest/retain some of its profits into the company instead of paying it out to the shareholders as dividends. Because it belongs to the shareholders, general reserve is treated as an equity.

Retained Earnings (at Year End) = Retained Earnings from Previous Year + Profit leftover after deducting Tax, Dividends and Transfer to General Reserve.  Please see Profit and Loss Appropriation account for more.

Here is the format of SoFP for a Company.

Company Balance Sheet - Vertical Format A

Company Balance Sheet - Vertical Format B

Summary: Get the format and reminders right!