What is a company?

 We need accounting because it’s the only way for

business to grow and flourish. Accounting is the
backbone of the business financial world. After all,
accounting was created in response to the development
of trade and commerce during the medieval times.
 As everyone of us knows, companies are jointly owned
by the shareholders. The management of the company
is vested in the Board of Directors and are required to
assure the share holders that their interest is protected.
 · Every company is required to comply with the Accounting Standards and
the statutory auditors of every company are required to report whether the
Accounting Standards have been complied with or not.
 · Even non-corporate entities such as partnership firms, sole-proprietary
concerns/individuals, societies registered under the Societies Registration
Act, trusts, associations of persons, and Hindu Undivided Families, where
financial statements of such entities are statutorily required to be audited, for
example, under Section 44AB of the Income-tax, 1961.
 · The Securities and Exchange Board of India (SEBI) has added a new
clause in the listing agreement to provide that listing companies shall
mandatorily comply with all the Accounting Standards issued by ICAI from
time to time.
 · The Insurance Regulatory and Development Authority (IRDA) requires
insurance companies to follow the Accounting Standards issued by the ICAI.
 Income Tax Act Of 1961.

 Companies Act of 1956.

 Meaning of business In view of section
2(13) business includes any (a) trade, (b)
commerce, (c) manufacture, or (d) any
adventure or concern in the nature of trade,
commerce or manufacture.
1) ACCOUNTING METHOD
 The Financial Statements are prepared as

going concern,
2) USE OF ESTIMATES
 The preparation of financial statements in

conformity with generally accepted

accounting principles requires estimates and
assumptions to be made that affect the
reported amounts of assets and liabilities on
the date of the financial statements
3) FIXED ASSETS
Fixed Asset is an asset, which is :—
 Held with intention of being used for the purpose
of producing or providing goods and service.
 Not held for sale in the normal course of business.
 Expected to be used for more than one accounting
period.
 Fixed Assets are stated at cost less
-accumulated depreciation.
4) DEPRECIATION
Depreciable assets
Those assets which—
 Are expected to be used for more than one
accounting period.
 Have a limited useful life.
 Are held for use in production of goods and
services
a) Depreciation is provided as per the straight-
line method at rates prescribed in Schedule
XIV of the Companies Act, 1956,
Depreciation* =

Cost - (Scrap value at the end of useful life)

Estimated useful life in No. of years

*If straight line method of Depreciation is followed.

5) INVENTORIES
The objective of this is to formulate the
method of compu­tation of cost of
inventories/stock, determine .the value of
closing stock, inventory at which, the
inventory is to be shown in balance sheet
till it is not sold and recognized as revenue.
6) SUNDRY DEBTORS, LOANS & ADVANCES
 Full provision is made in respect of debit

balances (except receivables from Govt.

Departments and loans and advances to
staff), outstanding for a period exceeding
threeyears.
7) ACCOUNTING FOR FOREIGN CURRENCY
TRANSACTIONS
Transactions in foreign currency (except
those pertaining to fairs and exhibitions)
are recorded at the rate of exchange
prevailing at the time of the transactions /
remittance rate. Any gain or loss on account
of exchange differences on settlement
is recognised in the Profit & Loss Account.
8) RETIREMENT AND OTHER EMPLOYEES
BENEFITS
9) Taxation
 a) Provision is made for current income tax

liability, which is likely to arise on the results

for the year, at the current rate of tax in
accordance with the provision of
Income Tax Act, 1961.
 b) Deferred income tax is provided on all

timing difference at the Balance Sheet date

between the tax base of Assets and Liability
and their carrying amount for financial
reporting purposes.
 c) Deferred Tax Assets are recognised only to
the extent that there is a reasonable certainty
of realization. However, in case of
unabsorbed depreciation and carry forward of
losses under tax laws, deferred tax assets are
recognized only to the extent of virtual
certainty supported by convincing evidence
that sufficient future taxable income will be
available for set-off.
 d) Deferred Tax Assets and Liability are

measured using the tax rates and tax laws

that have been enacted or substantively
enacted by the Balance Sheet date.
 Sec 209 (of the Companies Act 1956)  States
all the Books of account to be kept by
company.
 Every company shall keep at its registered

office proper books of account.

 Books shall be open to inspection by any

director during business hours.

 If any person fails to take all reasonable steps

to secure compliance by the company, he

shall be punishable.
 Sec 210 (of the Companies Act 1956)   -   
Annual accounts and balance sheet.
 At every annual general meeting of a

company held in pursuance of section 166,

the Board of directors of the company shall
lay before the company :
(a) a balance sheet as at the end of the period
specified in sub-section (3); and
(b) a profit and loss account for that period.
 In the case of a company not carrying on

business for profit, an income and

expenditure account shall be laid before the
company at its annual general meeting
Sec 217(of the companies act 1956) –
Board Of Directors Report
 State of the company's affairs.
 Amount proposed to be transferred to
reserves.
 Amount recommended as dividends.
 Material changes affecting die financial
position of the company between the end of
the financial year and the date of die report.
 Changes that have occurred in the nature of the
company's business during the financial year.
 Names of the employees who have received an
aggregate remuneration in excess of Rs. 144000 per
annum
 A report on conservation of energy, technology
absorption, and foreign exchange earning; and outgo.
 A reference to benefits expected from contracts yet
to be executed.
 Changes in the type of business came out by the
company.
 Sec 219 (of the Companies Act 1956)   -   
Right of members to copies of Balance Sheet
and Auditors

 Sec 220(of the Companies Act 1956)    -   

Three copies of Balance Sheet, etc., to be filed
with Registrar.
Ashish
&
Sandeep