Chapter 13 · Financial Statements: the Balance Sheet
Liabilities and equity
Who has a claim on the company, and in what order they get paid.
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The right side of the balance sheet is a queue. If the company were wound up, this is the order in which claims are settled — and equity holders are last.
- 1Secured lenders — banks with a charge over specific assets.
- 2Unsecured lenders and creditors — debenture holders, suppliers, tax.
- 3Preference shareholders — a fixed claim ahead of ordinary equity.
- 4Ordinary shareholders — whatever is left, which is often nothing.
Inside equity
| Line | What it is |
|---|---|
| Share capital | Face value × number of shares issued — what shareholders paid in at par |
| Reserves | Accumulated profit retained rather than paid out |
| Retained earnings | The running total of profit kept in the business |
| Treasury shares | Shares the company bought back, held by itself |
| Minority interest | The part of a subsidiary owned by someone else |
Reserves are what allow a Nepali company to issue bonus shares. A bonus issue capitalises reserves — moving money from the reserves line into the share capital line. Nothing enters or leaves the company. That is why a bonus is not income.
Debt lines that matter
- Long-term debt — repayable beyond a year. Funds long-lived assets.
- Short-term debt — repayable within a year. Includes the current portion of long-term debt, which people miss.
- Lease liability — leases now sit on the balance sheet, so a company that rents heavily looks more indebted than it used to.
- Provisions — amounts set aside for known future obligations.
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