Page 341 - CA Final PARAM Digital Book.

• Equity to Long Term Loans.
• Sales to Fixed Assets.
• Sales to Average Inventories held.
• Sales to Book Debts.

• Current Assets to Current Liabilities.
• Quick Assets (the current assets that are readily realizable) to Quick Liabilities.
• Return on Capital Employed.
➢ Break-up of annual sales: -
Product-wise to show their trends.
➢ Schedule of assets and liabilities: -
• Assets: -
o To ensure their existence, ownership and proper valuation.
o To examine whether assets have been adequately insured.
• Liabilities: -
o To determine present and future obligations.
o To ensure completeness of recording.

QNO Investigation of borrower-Special Focus on Assets & liabilities - Old Course-- (N20M)
643.020 Unique
A nationalized bank received an application from a Limited company seeking sanction of a term loan to
expand its existing business. In this connection, the Loan Manager of the Bank approaches you to
conduct a thorough investigation of the items of the Balance Sheet of this Limited company and submit a

confidential report based on which he will decide whether to sanction this loan or not. List out the major
steps an investigating accountant would keep in mind while verifying assets and liabilities included in the
Balance Sheet of the borrower company which has been furnished to the Bank.
➢ Steps involved in the verification of assets and liabilities included in the Balance Sheet of the borrower
company which has been furnished to the Bank - The investigating accountant should prepare
schedules of assets and liabilities of the borrower and include in the particulars stated below:
• Fixed assets –
A full description of each item, its gross value, the rate at which depreciation has been charged
and the total depreciation written off. In case the rate at which depreciation has been adjusted is
inadequate, the fact should be stated. In case any asset is encumbered, the amount of the charge
and its nature should be disclosed. In case an asset has been revalued recently, the amount by
which the value of the asset has been decreased or increased on revaluation should be stated
along with the date of revaluation. If considered necessary, he may also comment on the
revaluation and its basis.

• Inventory –
The value of different types of inventories held (raw materials, work-in-progress and finished
goods) and the basis on which these have been valued. Details as regards the nature and
composition of finished goods should be disclosed. Slow moving or obsolete items should be
separately stated along with the amounts of allowances, if any, made in their valuation. For
assessing redundancy, the changes that have occurred in important items of inventory
subsequent to the date of the Balance Sheet, either due to conversion into finished goods or sale,
should be considered. If any inventory has been pledged as a security for a loan the amount of
loan should be disclosed.

• Trade Receivables, including bills receivable - Their composition should be disclosed to indicate
the nature of different types of debts that are outstanding for recovery; also whether the debts
were being collected within the period of credit as well as the fact whether any debts are
considered bad or doubtful and the provision if any, that has been made against them.
Further, the total amount outstanding at the close of the period should be segregated as follows:
o debts due in respect of which the period of credit has not expired;

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