Personal Balance Sheet – Assets, Liabilities & Net Worth
If the Income Statement is your "Speedometer" (how fast money comes/goes), the Balance Sheet is your "Fuel Gauge" (how much wealth you actualy have).
The Accounting Equation
Net Worth = Total Assets - Total Liabilities
- Assets: What you OWN (Calculated at current Market Value).
- Liabilities: What you OWE (Current Outstanding Balance).
- Net Worth: What is truly yours (Solvency).
1. Classification of Items
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2. Practical Problem (10 Marks)
Question: From the following particulars of Mr. Arjun for the year ending 31st March 2024, prepare a Personal Balance Sheet and calculate his Net Worth.
- Cash in Hand: ₹10,000
- Home Loan Outstanding: ₹20,00,000
- Mutual Funds (Market Value): ₹5,00,000
- Car (Resale Value): ₹3,00,000
- Credit Card Dues: ₹40,000
- House (Self Occupied - Market Value): ₹45,00,000
- Gold Jewelry: ₹2,00,000
- Savings Bank Balance: ₹80,000
- Education Loan: ₹4,00,000
3. Solution
Personal Balance Sheet of Mr. Arjun as on 31-03-2024
| Liabilities (What you OWE) | Amount (₹) | Assets (What you OWN) | Amount (₹) |
|---|---|---|---|
| Current Liabilities | Liquid Assets | ||
| Credit Card Dues | 40,000 | Cash in Hand | 10,000 |
| Savings Bank Balance | 80,000 | ||
| Long Term Liabilities | Financial/Investment Assets | ||
| Home Loan | 20,00,000 | Mutual Funds | 5,00,000 |
| Education Loan | 4,00,000 | ||
| Personal/Real Assets | |||
| House Property | 45,00,000 | ||
| Car | 3,00,000 | ||
| Gold | 2,00,000 | ||
| Total Liabilities (A) | 24,40,000 | Total Assets (B) | 55,90,000 |
Net Worth Calculation
- Formula: Total Assets - Total Liabilities
- Calculation: ₹55,90,000 - ₹24,40,000
- Net Worth: ₹31,50,000
Analysis:
- Solvency Ratio (Net Worth / Assets): 31.5L / 55.9L = 56%. (Healthy).
- Asset Quality: He has high Real Estate exposure (45L) versus Financial Assets (5L). He is "Asset Rich, Cash Poor".
4. Why Valuations Matter?
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5. Exam Notes: Writing the Answer
Question: "Draft a proforma of Personal Balance Sheet." (5 Marks)
Key Points:
- Structure: T-Format or Vertical Format.
- Headings: Assets on Right, Liabilities on Left.
- Categories: Must segregate Liquid vs Invested Assets, and Short vs Long term Liabilities.
- Net Worth: Clearly show it as the balancing figure.
Summary
- Snapshot: Balance Sheet is a photo of your finance at a specific date.
- Solvency: Positive Net Worth = Solvent. Negative = Bankrupt.
- Growth: Track Net Worth every year. It should grow faster than inflation.
Quiz Time! 🎯
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