Correct Option
The correct option is 2 and 3 only.
Explanation
A bank's balance sheet is a financial statement that summarizes its financial position at a specific point in time. It is based on the fundamental accounting equation: Assets = Liabilities + Net Worth (Capital/Equity). In this context, the bank is treated as a separate legal entity distinct from its owners.
Statement-wise Analysis
- Statement 1 is Incorrect.
Net Worth is not the sum of Assets and Liabilities. It is the difference between Assets and Liabilities (Net Worth = Assets − Liabilities). It represents the residual value of the bank that belongs to the shareholders after all outside liabilities have been paid.
- Statement 2 is Correct.
In standard macroeconomic conventions, the balance sheet is presented with Assets on the left and Liabilities and Net Worth on the right. If assets are greater than liabilities, the Net Worth is positive and is recorded on the right-hand side (the liability/equity side) to balance the equation. If liabilities exceeded assets, the net worth would be negative (insolvency).
- Statement 3 is Correct.
Net Worth represents the owner's equity or capital. Since the bank is a separate legal entity, the capital contributed by the owners (shareholders) is treated as a liability of the bank towards the owners. Therefore, it represents the claims of the owners against the bank.
Key Takeaway
Net Worth acts as a buffer for a bank; it is the owner's stake and is calculated as Assets minus Liabilities. In the event of liquidation, this is the amount claimable by shareholders after settling all debts.