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Net Loss and Negative reserves on balance sheet - is it correct?

Net Loss and Negative reserves on balance sheet...

Capital:  

Owner's Equity  700,000.00  

Net Loss           (445,338.11)

Reserves           (324,163.52)

Total Capital      (69,501.62) 

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By Old Greying Accountant
19th Apr 2012 10:40

No ...

... it is £69501.63

:o)

Seriously, we need to see the top half of the balance sheet, is it a company? There must be long term finance to support the deficit otherwise the business is insolvent.

 

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By annejat
nogammonsinanundoubledgame
20th Apr 2012 08:02

Mistake...

Yes, it's it is £69501.63...:)

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By khalm0
19th Apr 2012 13:03

lol to above!

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19th Apr 2012 19:09

Negative Equity

Yes and no. It's quite clear from your analysis that the company in question would have made significant cumulative losses relative to it's equity in the previous periods, therefore in this period in question then it would have made sense to question the viability of the business while there was still some net reserves to fall back on (in this case £121,174.59), assuming equity was the same the previous year ofcourse. I think to answer your question without being too technical - Yes it is technically correct to analyse accounts this way - No it is legally wrong to continue in business this way!

Reiterating on the Old Greying Accountant's point then the business is insolvent and if extra equity or debt is not found to fund the shortfall in which case the company must fold.

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By Old Greying Accountant
20th Apr 2012 00:46

Not enough info ...

... to make that call.

We need to see the composition of the top half of the balance sheet, as although what we see looks bad, there may be justification for it.

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By annejat
20th Apr 2012 08:07

Its a new company

It's a new company started in June 2011. No sales were made during yr 2011 and therefore no profit were made..

So, the answer is ---- it is possible if we have net loss and negative reserves in the balance sheet...am i right?? 

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By Old Greying Accountant
20th Apr 2012 13:17

No ...

... how can you have reserves in a new company?

What is owners equity - share capital ?

If so the difference must be net assets of £254661.89.

 

 

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