MBA Revised Chp-12 - Final Accounts of Companies

Learning Outcomes
After studying this Chapter, you shall be able to understand

 Proper Books of Accounts of Companies
 Legal Provisions relating to Books of Account
 Components of Financial Statements
 Provisions relating to Financial statements
 Schedule III of Companies Act, 2013
 Preparation of Statement of Profit and Loss and Balance sheet
- As per Division II to Schedule III
12.1 INTRODUCTION
The Chapter IX of The Companies Act, 2013 deals with ‘Accounts of Companies’. The sections
128 to 138 have been covered in this chapter IX. This portion of the Act specifically deals
with the books of accounts, financial statements, Board’s report, internal audit, etc. The
provisions clearly specify that ‘Books of Account’ are totally different from ‘Financial
Statement”. Let us discuss the two terms in detail.
12.2 BOOKS OF ACCOUNT
The Companies Act, 2013 makes it obligatory on the part of every company to keep the
“Books of Account” of the company.As per section 2(13) of The Companies Act, 2013 “books
of account” includes records maintained in respect of-
i) all sums of money received and expended by a company and matters in relation to
which the receipts and expenditure take place;
ii) all sales and purchases of goods and services by the company;
iii) the assets and liabilities of the company; and
iv) the items of cost as may be prescribed under section 148 in the case of a company
which belongs to any class of companies specified under that section;
Did You Know MEANING OF BOOKS, PAPERS AND DOCUMENTS

The following is the status under Companies Act, 2013:
(a) “Book and paper” include books of account, deeds, vouchers, writings,
documents, minutes and registers maintained on paper or in electronic form.
[Section 2(12)]
(b) “Document” includes summons, notice, requisition, order, declaration, form
and register, whether issued, sent or kept in pursuance of this Act or under any
other law for the time being in force or otherwise, maintained on paper or in
electronic form
Section 2(36)
Foundation Accounting 11.1 # Chapter 11 (Final accounts of Companies)

12.3 LEGAL PROVISIONS RELATING TO BOOKS OF ACCOUNTS

The legal provisions relating to the books of accounts are contained in Section 128 of The
Companies Act, 2013. These are as follows:
1. Location of books of accounts: The books of accounts are to be kept at the
registered office of the company. The books may be kept at other place if board of
directors decide so. But the shall file with the registrar a notice in writing giving full
address of that other place, within 7 days of the decision of the board. As per Rule 2A
of Companies (Accounts) Rules, 2014, such notice shall be in form AOC-5.
2. Place of Branch Books: Where a company has a branch office in India or outside
India, the company may keep the books of accounts relating to the branch at that
branch office. But the proper summarized returns must be sent to the registered
office at an internal of not more than three months.
3. Method of Preparation: The books of account etc. must –

(a) give a true and fair view of the state of the affairs of the company, including that
of its branch office or offices(s);
(b) explain the transactions effected both at the registered office and its branches
(c) be prepared on accrual basis;
(d) be prepared according to the double entry system of accounting.
4. Maintenance of books in Electronic Form: The books of account and other relevant
papers may be kept in electronic mode in such manner as may be prescribed. These
have been prescribed under Rule 3 of the Companies (Accounts) rules, 2014.
5. Preservation of Books of account: The books of account of every company shall be

preserved in good order together with relevant vouchers. The time period of
preservation shall be:
(a) Not less than eight financial years immediately preceding relevant financial year
(b) All the preceding years where the company had been in existence for a period
less than eight years.
Where an investigation has been ordered in respect of the company, the Central
Government may direct that the books of account may be kept for such longer period
as it may deem fit.
6. Inspection of Books: The books of account and other books and papers maintained by
the company within India shall be open for inspection at the registered office of the
company or at such other place in India by any director during business hours. The
Registrar of companies and an officer of Government authorised by the Central
Government has also the right of such inspection.
7. Responsibility for keeping the books: The responsibility for keeping the proper books
of account is that of the:
(a) Managing director
(b) Whole-time director in charge of finance
(c) Chief Financial Officer or
(d) Any other person of a company charged by the Board with such duty.
If these persons contravene the provisions in this regard, then they shall be punishable
as under:
(a) With imprisonment up to one year; or
(b) With fine: Minimum Rs. 50,000 and Maximum Rs. 5,00,000; or
(c) With both.
Foundation Accounting CA. K. M. Bansal & Dr. Ritu Gupta

12.4 FINANCIAL STATEMENTS
As per section 2(40) of The Companies Act, 2013“financial statement” in relation to a

company, includes—
(i) a balance sheet as at the end of the financial year;
(ii) a profit and loss account, or in the case of a company carrying on any activity not
for profit, an income and expenditure account for the financial year;
(iii) cash flow statement for the financial year;
(iv) a statement of changes in equity, if applicable; and
(v) Any explanatory note annexed to, or forming part of, any document referred above.
In case of a company carrying on any activity not for profit, an income and expenditure
account is prepared in place of profit and loss account.
Did You Know WHEN CASH FLOW STATEMENT IS NOT MANDATORY

The Section 2 (40) of the Companies Act, 2013, specifically includes Cash Flow
Statement as part of Financial Statements. But following companies may not include
cash flow statement in their financial statements:
(a) One Person Company
(b) Small company and
(c) Dormant company.
12.5 LEGAL PROVISIONS RELATING TO FINANCIAL STATEMENTS

The legal provisions relating to the financial statements are contained in Section 129, 133,
134 and 137 of The Companies Act, 2013. These are as follows:
1. True and Fair View: The financial statements shall give a true and fair view of the
state of affairs of the company. The following provisions are also relevant in this
regard:
 The financial statement shall comply with the accounting standards notified under
section 133
 The financial statement shall be in the form or forms as may be provided for
different classes of companies in Schedule III.
 The items contained in the financial statements shall be in accordance with
accounting standards.
Disclosure of reasons of deviation from Accounting Standards

Where the financial statements of a company do not comply with the accounting
standards, the company shall disclose in its financial statements:
(a) the deviation from the accounting standards
(b) the reasons for such deviation and
(c) the financial effects, if any, arising out of such deviation.
2. Consolidated Financial Statements: Where a company has one or more subsidiaries,

it shall, in addition to financial statements stated above, prepare a consolidated
financial statement of the company and of all the subsidiaries in the same form and
manner in which financial statement of the company is prepared.
Rules by Central Government: The Central Government may provide for the
consolidation of accounts of companies in such manner as may be prescribed. Such
rules have been prescribed in Rule 6 of the Companies (Accounts) Rules, 2014.

Statement containing features of Subsidiary: It has also been provided that the
company shall also attach along with its financial statement, a separate statement
containing the salient features of the financial statement of its subsidiaries in such
form as may be prescribed. For this purposes, the word “subsidiary” shall include
associate company and joint venture.
3. Laying before Annual general Meeting: At every annual general meeting of a

company, the Board of Directors of the company shall lay before such meeting
financial statements for the financial year.
4. Exemption: The Central Government may, on its own or on an application by a class

or classes of companies, by notification, exempt any class or classes of companies
from complying with any of the requirements of section 129 or the rules made
thereunder.
5. Persons Responsible: The following persons are responsible:

(i) Managing director
(ii) Whole-time director in charge of finance
(iii) Chief Financial Officer or any other person charged bythe Board with such
duty
(iv) All the directors in the absence of any of the officers mentioned above.
6. Penalty : The following punishment for contravention of related provisions are as

follows:
(i) imprisonment up to one year; or
(ii) Fine: Minimum Rs. 50,000; Maximum Rs. 5,00,000
(iii) With both.
12.6 SCHEDULE III TO THE COMPANIES ACT, 2013

The section 129(1) requires that the financial statements shall comply with the Accounting
Standards and shall be in the form provided in Schedule III. The schedule III to the Companies
Act, 2013 was notified along with the Act itself on 29th August, 2013 thereby providing the
manner in which every company registered under the Act shall prepare its Financial
Statements. Financial Statements as defined under the Act include Balance Sheet, Statement
of Changes in Equity for the period, the Statement of Profit and Loss for the period and
Notes.
The Companies Act, 2013 has been undergoing changes from time to time through various
amendments to the Act, Rules and through notifications and circulars of the Ministry of
Corporate Affairs which are issued to keep the law at par with various developments in the
economic environment, regulatory requirement, policies of the country and globalization.
Further, the Government of India decided to converge Indian Accounting Standards with
certain carve outs from International Financial Reporting Standards, in a phased manner to
accomplish its commitment in G-20 summit with the objective of achieving high quality global
accounting standards.1
As on today, the Ministry of Corporate Affairs has notified the following three amendments to
Schedule III of Companies Act:
(1) Notification dated 4th September, 2015:
Vide above notification, the MCA has inserted the classification of Trade Payables into
two parts:
(A) Total outstanding dues of micro enterprises and small enterprises; and
(B) Total outstanding dues of creditors other than micro enterprises and small enterprises.
(2) Notification dated 6th April, 2016:
1
Guidance Note on Division II- Issued by ICAI
The MCA vide this notification inserted Division II to Schedule III for preparation of
Financial Statements by those entities who have to comply with Indian Accounting
Standards (Ind AS).
(3) Notification dated 11th October, 2018:
This notification includes the following:
(a) The amendments in Division I.
(b) The amendments in Division II.
(c) The Division III has been inserted for preparation of financial statements for a Non-
Banking Financial Company (NBFC) whose financial statements are drawn up in
compliance of the Companies (Indian Accounting Standards) Rules, 2015.
Did You Know Amendments to Schedule III by Central Government

The Schedule III of the Companies Act, 2013 came into force with effect from the 1 st
April, 2014 vide Notification S.O.902 (E), dated 26th March 2014.
The Central Government is empowered under section 467(1) of the Companies Act,
2013 to make amendments in Schedule III of the Act. In exercise of the this power, the
Central Government subsequently amended the Schedule III vide Notification G.S.R.
679(E), dated 4th September 2015 and vide Notification G.S.R. 404(E), dated 6th April,
2016. It was further amended vide Notification dated 11th October, 2018.
12.7 PRESENT STATUS of SCHEDULE III

As already stated in Para 12.6 above, there have been several amendments made by MCA to
Schedule III. Considering the latest amendment dated 11th October, 2018, the Schedule III
comprises three parts:
Division I: For preparation of Financial Statements by those entities whose Financial
Statements are required to comply with the Companies (Accounting Standards)
Rules, 2006.
Division II: For preparation of Financial Statements by those entities whose Financial
Statements are required to comply with the Companies (Indian Accounting
Standards) Rules, 2015.
Division III: For preparation of Financial Statements for a Non-Banking Financial Company
(NBFC) whose financial statements are drawn up in compliance of the
Companies (Indian Accounting Standards) Rules, 2015.
Portion of Schedule III covered under this chapters

The curriculum covers the preparation of Balance Sheet and Statement of Profit and
Loss A/c in accordance with the Companies (accounting Standards) Rules, 2015.
Therefore, the present chapter is based on Division II to Schedule III only.
12.8 GENERAL INSTRUCTION FOR PREPRATION OF FINANCIAL STATEMENTS OF A COMPANY

REQUIRED TO COMPLY WITH Ind AS
The general instructions for preparation of financial statements for a company whose
Financial Statements are drawn up in compliance of the companies (Indian Accounting
standard) Rules. 2015, as per Division II to Schedule III, are reproduced below:
1. Every company, to which Indian Accounting standards apply, shall prepare its financial
statements in accordance with this Schedule or with modification as may be required
under certain circumstances.
2. Where compliance with the requirements of the Act including Accounting Standards as
applicable to the companies require any change in treatment or disclosure including

addition, amendment, substitution or deletion in the head or sub-head or any changes,
inter se, in the financial statements or statements forming part thereof, the same shall
be made and the requirements of this Schedule shall stand modified accordingly.
3. The disclosure requirements specified in this Schedule are in addition to and not in
substitution of the disclosure requirements specified in the Accounting Standards.
Additional disclosures specified in the Accounting Standards shall be made in the notes or
by way of additional statement unless required to be disclosed on the face of the
Financial Statements. Similarly, all other disclosures as required by the Companies Act,
2013 shall be made in the notes in addition to the requirements set out in this Schedule.
4. (i) Notes shall contain information in addition to that presented in the Financial
Statements and shall provide where required-
(a) Narrative descriptions or disaggregations of items recognised in those
statements; and
(b) Information about items that do not qualify for recognition in those
statements.
(ii) Each item on the face of the Balance Sheet, statement of changes in equity and
Statement of Profit and Loss shall be cross-referenced to any related information in
the notes. In preparing the Financial Statements including the notes, a balance shall
be maintained between providing excessive detail that may not assist users of
financial statements and not providing important information as a result of too much
aggregation.
5. Depending upon the turnover of the company, the figures appearing in the Financial
Statements may be rounded off as given below:—
Turnover Rounding off
(a) less than one hundred crore rupees To the nearest hundreds, thousands, lakhs
or millions, or decimals thereof.
(b) one hundred crore rupees or more To the nearest lakhs, millions or crores, or
decimals thereof.
Once a unit of measurement is used, it should be used uniformly in the Financial
Statements.
6. Financial Statements shall contain the corresponding amounts (comparatives) for the
immediately preceding reporting period for all items shown in the Financial Statements
including notes except in the case of the Financial Statements laid before the Company
after its incorporation.
7. Financial statement shall disclose all ‘material’ items, i.e the items if they could,
individually or collectively, influence the economic decisions that user make on the basis
of the financial statements. Materiality depends on the size or nature of the item or a
combination of both, to be judged in the particular circumstances.
8. For the purpose of this Schedule, the terms used herein shall be as per the same
meanings assigned to them in Indian Accounting Standards.
9. Where any Act or Regulation requires specific disclosurs to be made in the Financial
Statements of a company, the said disclosures shall be made in addition to those
required under this schedule.
Note:—This Schedule sets out the minimum requirements for disclosure on the face of the
Financial Statements i.e., Balance Sheet, statement of changes in equity for the
period and the Statement of Profit and Loss for the period (the term statement of
profit and loss has the same meaning as profit and loss Account) and Notes. Cash flow
statement shall be prepared, where applicable, in accordance with the requirements
of the relevant Indian Accounting standard.
Line items, sub-line items and sub-totals shall be presented as an addition or
substitution on the face of the Financial Statements when such presentation is
relevant to an understanding of the company’s financial position or performance or
to cater to industry/sector-specific disclosure requirements or when required for
compliance with the amendments to the Companies Act, 2013 or under the
Accounting Standards.
12.9 FORMAT OF BALANCE SHEET
PART I — BALANCE SHEET

Name of the Company…………………….
Balance Sheet as at ………………………
(Rupees in…………)
Particulars Note Figures Figures as
No. as at the at the end
end of of the
current previous
reporting reporting
period period
1 2 3 4
ASSETS
(1)Non-current assets
(a) Property, Plant and Equipment
(b) Capital work-in-progress
(c) Investment Property
(d) Goodwill
(e) Other Intangible assets
(f) Intangible assets under development
(g) Biological Assets other than bearer plants
(h) Financial Assets
(i) Investments
(ii) Trade receivables
(iii) Loans
(iv) other (to be specified)
(i) Deferred tax assets (net)
(j) Other non-current assets
(2) Current assets
(a) Inventories
(b) Financial Assets
(i) Investments
(ii) Trade receivables
(iii) Cash and cash equivalents
(iv) Bank balances other than(iii) above

(v) Loans
(vi) Others (to be specified)
(c) Current Tax Assets (Net)
(d) Other current assets
TOTAL ASSETS
EQUITY AND LIABILITIES
EQUITY
(a) Equity Share Capital
(b) Other Equity
LIABILITIES
Non-current liabilities
(a) Financial Liabilities
(i) Borrowings
(ii) Trade Payables:-
(iii)Other financial liabilities (other than
those specified in item (b), to be specified)
(b) Provisions
(c) Deferred tax liabilities (Net)
(d) Other non-current liabilities
Current liabilities
(i) Borrowings
(ii) Trade Payables:-
(iii) Other financial liabilities (other than those
specified in item (c)
(b) Other current liabilities
(c) Provisions
(d) Current Tax Liabilities (Net)
TOTAL EQUITY and LIABILITIES

See accompanying notes to the financial statements.

STATMENT OF CHANGES IN EQUITY

Statement of Changes in Equity for the period ended............
A. Equity Share Capital
Balance at the beginning of Changes in equity share capital Balance at the end of the
the reporting period during the year reporting period
B. Other Equity
Reserve and Surplus
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Changes
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Restated
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Total
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Transfer
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Note: Remeasurment of defined benefit plans and fair value changes relating to own credit risk of
financial liabilities designated at fair value through profit or loss shall be recognised as a part of
retained earning with separate disclosure of such items along with the relevant amounts in the
Notes.
12.10 GENERAL INSTRUCTIONS FOR PREPARATION OF BALANCE SHEET

The Division II to Schedule II specifies the general instructions for the preparation of
Balance Sheet of a company in compliance with Ind. AS. For conceptual understanding of
the students, these general instructions have been reproduced as below:
1. An entity shall classify an asset as current when:-

(a) It expects to realise the asset, or intends to sell or consume it, in its normal
operating cycle;
(b) It holds the asset primarily for the purpose of trading;
(c) It expects to realise the asset within twelve months after the reporting period; or
(d) The asset is cash or a cash equivalent unless the asset is restricted from being
exchanged or used to settle a liability for at least twelve months after the
reporting period.
Note: An entity shall classify all other assets as non-current.
2. Operating Cycle: The operating cycle of an entity is the time between the
acquisition of assets for processing and their realisation in cash or cash
equivalents, when the entity's normal operating cycle is not clearly
identifiable, it is assumed to be twelve months.
3. An entity shall classify a liability as current when-
(a) It expects to settle the liability in its normal operating cycle;
(b) It holds the liability primarily for the purpose of trading;
(c) The liability is due to be settled within twelve months after the reporting period;
or
(d) It does not have an unconditional right to defer settlement of the liability for at
least twelve months after the reporting period. Terms of a liability that could, at
the option of the counterparty, result in it settlement by the issue of equity
instruments do not affect its classification.
Note: An entity shall classify all other liabilities as non-current.
4. Trade Receivable: A receivable shall be classified as a 'trade receivable' if it is in
respect of the amount due on account of goods sold or services rendered in the
normal course of business.
5. Trade Payable: A payable shall be classified as a 'trade payable' if it is in respect of
the amount due on account of goods purchased or services received in the normal
course of business.
6. Disclosure: A company shall disclose the following in the Notes:
A. Non-Current Assets
I. Property. Plant and Equipment :
(i) Classification shall be given as:
(a) Land

(b) Buildings
(c) Plant and Equipment
(d) Furniture and Fixtures
(e) Vehicles
(f) Office equipment
(g) Bearer Plants
(h) Others (specify nature)
(ii) Assets under lease shall be separately specified under each class of assets
(iii) A reconciliation of the gross and net carrying amounts of each class of
assets at the beginning and end of the reporting period showing additions,
disposals, acquisitions through business combinations and other
adjustments and the related depreciation and impairment losses or
reversals shall be disclosed separately.
II. Investment Property:
A reconciliation of the gross and net carrying amounts of each class of
property at the beginning and end of the reporting period showing additions,
disposals, acquisitions through business combinations and other adjustments
and the related depreciation and impairment losses or reversals shall be
disclosed separately.
III. Goodwill:
A reconciliation of the gross and net carrying amount of goodwill at the
beginning and end of the reporting period showing additions, impairments,
disposals and other adjustments.
IV. Other Intangible assets:
(i) Classification shall be given as:
(a) Brands or trademarks
(b) Computer software
(c) Mastheads and publishing titles
(d) Mining rights
(e) Copyright, patents, other intellectual property rights, services and
operating rights
(f) Recipes, formulae, models, designs and prototypes
(g) Licenses and franchises
(h) Others (specify nature)
(ii) A reconciliation of the gross and net carrying amounts of each class of
assets at the beginning and end of the reporting period showing additions,
disposals, acquisitions through business combinations and other adjustments
and the related amortization and impairment losses or reversals shall be
V. Biological Assets other than bearer plants:
A reconciliation of the carrying amounts of each class of assets at the
beginning and end of the reporting period showing additions, disposals,
acquisitions through business combinations and other adjustments shall be

VI. Investment
(i) Investments shall be classified as:
(a) Investments in Equity Instruments;
(b) Investments in Preference Shares;
(c) Investments in Government or trust securities;
(d) Investments in debentures or bonds;
(e) Investments in Mutual Funds;
(f) Investments in partnership firms; or
(9) Other investments (specify nature)
Under each classification, details shall be given of names of the bodies
corporate that are-
(i) Subsidiaries,
(ii) Associates,
(iii) Joint ventures, or
(iv) structured entities,
In whom investments have been made and the nature and extent of the
investment so made in each such body corporate (showing separately
investments which are partly-paid). Investments in partnership firms along
with names of the firms, their partners, total capital and the shares of each
partner shall be disclosed separately.
(ii) The following shall also be disclosed:
(a) Aggregate amount of quoted investment and market value thereof:
(b) Aggregate amount of unquoted investment: and
(c) Aggregate amount of impairment in value of investment.
VII. Trade Receivables :
(i) Trade Receivables shall be sub-classified as:
(a) Secured, considered good;
(b) Unsecured, considered good; and
(c) Doubtful
(ii) Allowance for bad and doubtful debts shall be disclosed under the
relevant heads separately.
(iii) Debts due by directors or other officers of the company or any of them
either severally or jointly with any other person or debts due by firms or
private companies respectively in which any director is a partner or a
director or a member should be separately stated.
VIII. Loans;
(i) Loans shall be classified as-
(a) Security Deposits;
(b) Loans to related parties (giving details thereof); and
(c) Other loans (specify nature).
(ii)The above shall also be separately sub-classified as-

(b) Unsecured, considered good; and
(c) Doubtful.
(iii) Allowance for bad and doubtful loans shall be disclosed under the
(iv) Loans due by directors or other officers of the company or any of them
either severally or jointly with any other persons or amounts due by
firms or private companies respectively in which any director is a
partner or a director or a member should be separately stated.
IX. Bank deposits with more than 12 months maturity shall be disclosed under
‘Other financial assets';
X. Other non-current asset: Other non-current assets shall be classified as-
(i) Capital Advances; and
(ii) Advances other than capital advances;
(1) Advances other than capital advances shall be classifled as:
(b) Advances to related parties (giving details thereof; and
(c) Other advances (specify nature).
(2) Advances to directors or other officers of the company or any of
them either severally or jointly with any other persons or
advances to firms or private companies respectively in which any
director is a partner or a director or a member should be
separately stated, ln case advances are of the nature of a
financial asset as per relevant Ind AS, these are to be disclosed
under ‘other financial assets ‘separately.
(iii) Others (specify nature).
B. Current Assets
I. Inventories:
(i) Inventories shall be classified as-
(a) Raw materials;
(b) Work ‘in-progress;
(c) Finished goods;
(d) Stock-in-trade (in respect of goods acquired for trading);
(e) Stores and spares;
(f) Loose tools; and
(g) Others (specify nature).
(ii) Goods-in-transit shall be disclosed under the relevant sub-head of
inventories.
(iii) Mode of valuation shall be stated.
II. Investment:
(i) Investments shall be classified as-
(a) Investments in Equity instruments;

(b) Investment in Preference Shares;
(c) Investments in government or trust securities;
(d) Investments in debentures or bonds;
(e) Investments in Mutual Funds;
(f) Investments in partnership firms; and
(g) Other investments (specify nature).
Under each classification, details shall be given of names of the bodies
corporate that are-
(i) Subsidiaries,
(ii) Associates,
(iii) Joint ventures, or
(iv) structured entities,
In whom investments have been made and the nature and extent of the
investment so made in each such body corporate (showing separately
investments which are partly-paid)
(ii) The following shall also be disclosed
(a)Aggregate amount of quoted investments and market value thereof;
(b)Aggregate amount of unquoted investments;
(c) Aggregate amount of impairment in value of investments,
III. Trade Receivables
(i) Trade receivables shall be sub-classified as:
(b) Unsecured considered good; and
(c) Doubtful.:
(ii) Allowance for bad and doubtful debts shall be disclosed under the
(iii) Debts due by directors or other officers of the company or any of them
either severally or jointly with any other person or debts due by firms or
Private companies respectively in which any director is a partner or a
director or a member should be separately stated.
(iv) Cash and cash equivalents: Cash and cash equivalents shall be classified
as-
a. Balances with Banks (of the nature of cash and cash equivalents);
b. Cheques, drafts on hand;
c, Cash on hand; and
d. Others (specify nature).
V. Loans;
(i) Loans shall be classified as:
(a) Security deposits;
(b) Loans to related parties (giving details thereof); and
(c) Others (specify nature).
(ii) The above shall be sub-classified as:
(b) Unsecured considered good; and
(c) Doubtful.
(iii) Allowance for bad and doubtful loans shall be disclosed under the
(iv) Loans due by directors or other officers of the company or any of them
either severally or jointly with any other person or amounts due by
firms or private companies respectively in which any director is a
partner or a director or a member shall be separately stated.
VI. Other current assets (specify nature): This is an all-inclusive heading, which
incorporates current assets that do not fit into any other asset categories.
Other current assets shall be classified as-
(i) Advances other than capital advances
(1) Advances other than capital advances shall be classified as:
(b) Advances to related parties (giving details thereof);
(c) Other advances (specify nature)
(2) Advances to directors or other officers of the company or any of
them either severally or jointly with any other persons or advances
to firms or private companies respectively in which any director is a
partner or a director or a member should be separately stated.
(ii) Others (specify nature)
C. Cash and bank balances:
The following disclosure with regard to cash and Bank balances shall be made:
(a) Earmarked balances with banks (for example. for unpaid dividend) shall
be separately stated.
(b) Balances with banks to the extent held as margin money or security
against the borrowings, guarantees, other commitments shall be
(c) Repatriation restrictions, if any, in respect of cash and bank balances
shall be separately stated.
D. Equity
I. Equity Share Capital: For each class of equity share capital:
(a) The number and amount of shares authorised;
(b) The number of shares issued, subscribed and fully paid, and subscribed
but not fully paid;
(c) Per value per Share;
(d) A reconciliation of the number of shares outstanding at the beginning
and at the end of the period;
(e) The rights, preferences and restrictions attaching to each class of shares
including restrictions on the distribution of dividends and the repayment
of capital;

(f) Shares in respect of each class in the company held by its holding
company or its ultimate holding company including shares held by
subsidiaries or associates of the holding company or the ultimate holding
company in aggregate;
(g) Shares in the company held by each shareholder holding more than five
per cent shares specifying the number of shares held;
(h) Shares reserved for issue under options and contracts or commitments
for the sale of shares or disinvestment, including the terms and amounts;
(i) For the period of five years immediately preceding the date at which the
Balance Sheet is prepared
 aggregate Number and class of shares allotted as fully paid up
pursuant to contract without payment being received in cash;
 aggregate number and class of shares allotted as fully paid up by way
of bonus shares; and
 aggregate number and class of shares bought back;
(j) Terms of any securities convertible into equity shares issued along with
the earliest date of conversion in descending order starting from the
farthest such date;
(k) Calls unpaid (showing aggregate value of calls unpaid by directors and
officers);
(l) Forfeited shares (amount originally paid up).
II. Other Equity:
(i) 'Other Reserves ‘shall be classified in the notes as-
(a) Capital Redemption Reserve;
(b) Debenture Redemption Reserve;
(c) Share Options Outstanding Account; and
(d) Others- (specify the nature and purpose of each reserve and the
amount in respect thereof);
(Additions and deductions since last balance sheet to be shown under
each of the specified heads)
(ii) Retained Earnings represents surplus i.e balance of the relevant column
in the Statement of Changes in Equity;
(iii) A reserve specifically represented by earmarked investments shall
disclose the fact that it is so represented;
(iv) Debit balance of Statement of Profit and Loss shall be shown as a
negative figure under the head 'retained earnings'. Similarly, the balance
of 'Other Equity', after adjusting negative balance of retained earnings,
if any, shall be shown under the head 'Other Equity' even if the resulting
figure is in the negative; and
(v) Under the sub-head 'Other Equity', disclosure shall be made for the
nature and amount of each item.
E. Non-Current Liabilities
I. Borrowings:
(i) Borrowings shall be classified as-
(a) Bonds or debentures

(b) Term loans
(I) from banks
(lI) from other Parties
(c) Deferred payment liabilities
(d) Deposits.
(e) Loans from related parties
(f) Long term maturities of finance lease obligations
(g) Liability component of compound financial instruments
(h) Other loans (specify nature);
(ii) Borrowings shall further be sub-classified as secured and unsecured.
Nature of security shall be specified separately in each case.
(iii) Where loans have been guaranteed by directors or others, the aggregate
amount of such loans under each head shall be disclosed;
(iv) bonds or debentures (along with the rate of interest, and particulars of
redemption or conversion, as the case may be) shall be stated in
descending order of maturity or conversion, starting from farthest
redemption or conversion date, as the case may be, where
bonds/debentures are redeemable by installments, the date of maturity
for this purpose must be reckoned as the date on which the first
installment becomes due;
(v) Particulars of any redeemed bonds or debentures which the company has
power to reissue shall be disclosed;
(vi) Terms of repayment of term loans and other loans shall be stated; and
(vii) Period and amount of default as on the balance sheet date in
repayment of borrowings and interest shall be specified separately in
each case.
III. Provisions: The amounts shall be classified as-
(a) Provision for employee benefits; and
(b) Others (specify nature).
IV. Other non-current liabilities;
(a) Advances; and
(b) Others (specify nature).
F. Current Liabilities
I. Borrowings:
(i) Borrowings shall be classified as-
(a) Loans repayable on demand
(I) From banks
(II) From other parties
(b) Loans from related parties
(c) Deposits
(d) Other loans (specify nature);

(ii) Borrowings shall further be sub-classified as secured and unsecured.
Nature of security shall be specified separately in each case;
(iii) Where loans have been guaranteed by directors or others, the aggregate
amount of such loans under each head shall be disclosed;
(iv) Period and amount of default as on the balance sheet date in repayment
of borrowings and interest, shall be specified separately in each case.
II. Other Financial Liabilities: Other Financial liabilities shall be classified as-
(a) Current maturities of long-term debt;
(b) Current maturities of finance lease obligations;
(c) Interest accrued;
(d) Unpaid dividends;
(e) Application money received for allotment of securities to the extent
refundable and interest accrued thereon;
(f) Unpaid matured deposits and interest accrued thereon;
(g) Unpaid matured debentures and interest accrued thereon; and
(h) Others (specify nature).
'Long term debt' is a borrowing having a period of more than twelve months
at the time of origination.
III. Other current liabilities:
The amounts shall be classified as-
(a) Revenue received in advance;
(b) Other advances (specify nature); and
(c) Others (specify nature);
IV. Provisions:
The amounts shall be classified as-
(i) Provision for employee benefits; and
(ii) Others (specify nature)
G. The presentation of liabilities associated with group of assets classified as held for
sale and non-current assets classified as held for sale shall be in accordance with the
relevant Indian Accounting Standards (Ind ASs)
H. Contingent Liabilities and Commitments: (to the extent not provided for)
(i) Contingent Liabilities shall be classified as-
(a) Claims against the company not acknowledged as debt;
(b) Guarantees excluding financial guarantees; and
(c) Other money for which the company is contingently liable.
(ii) Commitments shall be classified as-
(a) Estimated amount of contracts remaining to be executed on capital
account and not provided for;
(b) Uncalled liability on shares and other investments partly paid; and
(c) Other commitments (specify nature).

I. Proposed Dividend:
The amount of dividends proposed to be distributed to equity and preference
shareholders for the period and title related amount per share shall be disclosed
separately. Arrears of fixed cumulative dividends on irredeemable preference shares
shall also be disclosed separately.
J. Issue for Specific Purpose:
Where in respect of an issue of securities made for a specific purpose the whole or
part of amount has not been used for the specific purpose at the Balance sheet date,
there shall be indicated by way of note how such un utilized amounts have been used
or invested.
7. When a company applies an accounting policy retrospectively or makes a restatement

of items in the financial statements or when it reclassifies items in its financial
statements, the company shall attach to the Balance Sheet, a "Balance Sheet" as at
the beginning of the earliest comparative period presented.
8. Share application money pending allotment shall be classified into equity or liability
in accordance with relevant Indian Accounting Standards. share application money to
the extent not refundable shall be shown under the head Equity and share application
money to the extent refundable shall be separately shown under 'Other financial
liabilities'.
9. Preference shares including premium received on issue, shall be classified and
presented as 'Equity' or 'Liability' in accordance with the requirements of the relevant
Indian Accounting Standards. Accordingly, the disclosure and presentation
requirements in that regard applicable to the relevant class of equity or liability shall
be applicable mutatis mutandis to the preference shares. For instance, plain
vanilla redeemable preference shares shall be classified and presented under ‘Non-
current liabilities' as 'borrowings' and the disclosure requirements in this regard
applicable to such borrowings shall be applicable mutatis mutandis to redeemable
preference shares.
10. Compound financial instruments such as convertible debentures, where split into
equity and liability components, as per the requirements of the relevant Indian
Accounting Standards, shall be classified and presented under the relevant heads in
'Equity' and 'Liabilities'
11. Regulatory Deferral Account Balances shall be presented in the Balance Sheet in
accordance with the relevant Indian Accounting Standards.

ILLUSTRATIONS on Preparation of BALANCE SHEET

Illustration 12.1
The following balances appeared in the books of Bright Ltd. as on 31 March, 2019:
Particulars Dr. Amount Cr.
Amount
Equity shares of 10 each, fully paid up 7,00,000
General reserve 2,30,000
Unclaimed dividend 526
Trade creditors (Short term) 42,858
Capital Work in Progress 24,000
Goodwill 50,000
Current Investment 30,000
Building (at cost) 1,50,000
Machinery (at cost) 2,30,000
Furniture (at cost) 5,000
Closing stock 1,48,680
Book debts 2,32,380
Investments (Non Current) 2,88,950
Provision for depreciation on fixed assets 1,10,000
Advance payment of income tax 50,000
Cash at bank 72,240
Surplus (1-4-2018) 20,848
Staff provident fund 37,500
Interest accrued on Investment 2,750
Provision For Taxation 50,000
Profit After Tax for the Current Year 84,268
Outstanding Managing Directors Remuneration 8,000
12,84,000 12,84,000
From the above mentioned balances, prepare the company’s balance sheet on 31
March, 2019, keeping in view that the company is required to follow Indian
Accounting Standards. Previous figures are not required.
Solution
Balance sheet of Bright Limited
As at 31-3-2019
Particulars Note Figures as at the
No. end of current
reporting period
1 2 3
ASSETS
(a) Property, Plant and Equipment 1 2,75,000
(b) Capital work-in-progress 24,000
(c) Goodwill 50,000
(d) Financial Assets
(i) Investments 2,88,950
(2) Current assets
(a) Inventories 1,48,680
(i) Investments 30,000
(ii) Trade receivables 2 2,32,380
(iii) Cash and cash equivalents 3 82,240
(c) Other Current Assets 4 2,750
TOTAL ASSETS 11,34,000
EQUITY
(a) Equity Share Capital 7,00,000
(b) Other Equity 3,35,116
LIABILITIES
Current liabilities
(i) Trade Payables 42,858
(b) Other current liabilities 8,526
(c) Provisions 37,500
(d) Current Tax Liabilities (Net) 10,000
TOTAL EQUITY and LIABILITIES 11,34,000
Notes to Accounts
Particulars Amount
1 Property, Plant & Equipment
Building (cost) 1,50,000
Machinery (cost) 2,30,000
Furniture (cost) 5,000
Gross Block 3,85,000
Less: provision for depreciation (1,10,000)
2,75,000
2 Trade Receivables
Debtors for goods 2,32,380
2,32,380
3 Cash and cash Equivalents
Cash at bank 82,240
72,240
4 Other current Assets
Accrued interest on investment 2,750
2,750
5 EQUITY SHARE CAPITAL

Authorised
Issued, Subscribed and fully paid
70,000 Equity Shares of 10 each 7,00,000
6 OTHER EQUITY
(a) General Reserve: 2,30,000
(b) Surplus
Last year balance (1-4-2018) 20,848
For the current year 84,268 1,05,116
3,31,116
7 Trade payable
Creditors for goods 42,858
42,858
8 Other current Liabilities
Unclaimed Dividends 526
Outstanding Remuneration to Managing 8,000
Director
8,526
9 Short term provisions
For staff provident fund 37,500
37,500
Illustration 12.2
The following is the Trial Balance of MSA Limited as on 31-3-2019.
Accounts Debit Credit
Secured term loans (Non Current) 7,24,200
Creditors 11,45,000
12% Debentures Account 7,00,000
Provision for tax 1,70,000
Share premium account 4,17,000
General reserve 22,84,500
Loans (Current Borrowings) 2,00,000
Provision for (Doubtful) Debts 20,200
Provision for Depreciation 5,00,000
Equity share capital (2,30,000 Shares @ 10) 30,00,000

Compound Financial Instrument (Equity Component) 12,00,000
Advances 3,72,000
Security Deposit 55,000
Cash on Hand 75,000
Balance with Banks 1,90,000
Cheques on Hand 10,000
Loose tools 50,000
Investments (Including Current Rs. 85,000) 2,25,000
Profit and loss accounts (Losses) 3,00,000
Debtors 12,25,000
Stores items 4,00,000
Land 14,00,000
Building 32,00,000
Furniture 3,10,500
Vehicle 7,40,000
Investment Property 3,14,000
Goodwill 2,00,000
Intangibles under Development 1,00,000
Computer Software 3,15,000
Trade Marks 1,20,000
Licenses & Franchise 85,000
Capital work in progress 2,00,000
Finished goods stock 4,74,400
103,60,900 103,60,900
Prepare balance sheet as at 31st March 2019 as per Indian Accounting Standards, in accordance with
Division II to Schedule III of Companies Act, 2013.
Solution
MSA Ltd.
Balance sheet as at 31 March 2019
No. end of current
reporting period
1 2 3
ASSETS
(1)Non-Current Assets
(b) Capital work-in-progress 2,00,000
(c) Investment Property 3,14,000
(d) Goodwill 2,00,000
(e) Other Intangible assets 2 5,20,000
(f) Intangible assets under development 1,00,00
(g) Financial Assets
(2) Current Assets
(a) Inventories 3 9,24,400
(i) Investments 85,000
(ii) Trade receivables 4 12,04,800
(iii) Cash and cash equivalents 5 2,75,000
(c) Other current assets 6 4,27,500
EQUITY
(b) Other Equity 7 36,01,500
LIABILITIES

(i) Borrowings 8 14,24,200
Current liabilities
(ii) Trade Payables:- 10 11,45,000
(c) Provisions 11 1,70,000
Notes to Accounts
Particulars Amount
1 Tangible Assets
Land 14,00,000
Building 32,00,000
Furniture 3,10,500
Vehicle 7,40,000
56,50,000
Less: Provision for Depreciation (5,00,000)
51,50,500
2 Other Intangible Assets
Computer Software 3,15,000
Trade Marks 1,20,000
Licenses & Franchise 85,000
5,20,000
3 Inventories
Loose tools 50,000
Stores 4,00,000
Stock of finished goods 4,74,400
9,24,400
4 Trade receivables
Debtors 12,25,000
Less: provision for doubtful debts 20,200
12,04,800
5 Cash and cash equivalents
Cash on Hand 75,000
Balance with Banks 1,90,000
Cheques on Hand 10,000
2,75,000
6 Other Current Assets
Advance 3,72,000
Security Deposit 55,000
4,27,000
7 Other Equity
(1) Securities premium 4,17,000
(2) General reserve 22,84,500
Less: Negative balance (profit and loss (3,00,000) 19,84,500
statement)
(3) Equity Component of Compound 12,00,000
Financial Instrument
Total 36,01,500
8 Non-Current borrowing
12% Debentures (secured) 7,00,000
Term loans 7,24,200
Total 14,24,200
9 Short term borrowing

Loans 2,00,000
2,00,000
10 Trade Payables
Sundry creditors 11,45,000
11,45,000
11 Current Tax Liability (Net)
Provision for tax 1,70,000
1,70,000
Illustration 12.3
The followings balances are extracted from the ledger of Ganesha Ltd. as on 31 March 2019.
Debit Balances Amount Credit Balances Amount
Land 3,00,000 Share capital 20,00,000
Building (cost 15,00,000) 10,00,000 Security premium 1,25,000
Machinery (cost 20,00,000) 14,60,000 Debentures Redemption fund 1,00,000
Furniture (cost 1,75,000) 1,30,000 Capital reserve 3,00,000
Stock General reserve 3,50,000
Raw Material 2,84,800 Short Term Borrowings 1,00,000
Work-in-Progress 3,54,500 Profit and loss account :
Loose Tools 50,700 Opening balance 1,93,400
Stores and Spares 1,40,000 Add: net profit
Debtors 9,88,750 For the year 5,50,000 7,43,400
Capital Work in Progress 90,000 12% secured Debentures 7,20,000
Investment Property 1,40,000 Bank loan (unsecured) 4,80,000
Goodwill 1,60,000 Sundry creditors 8,28,400
Loans Granted (Non-Current) 50,000 Provision for tax 2,45,000
Deferred Tax Asset 60,000
Cash in hand 77,500
Current account with bank 3,00,000
Interim Dividend paid 50,000
Advance income tax 1,90,550
Pre – paid Exp. 15,000
Investment (non-current) 1,50,000
54,91,800 54,91,800
Prepare balance sheet as on 31 March 2019 keeping in mind the format prescribed under Division II to
Schedule III of Companies Act, 2013. Ignore previous year’s figures.
Solution
Ganesha Ltd.
Balance sheet as at 31 March 2019
No. end of current
reporting period
1 2 3
ASSETS
(b) Capital work-in-progress 90,000
(c) Investment Property 1,40,000
(d) Goodwill 1,60,000
(e) Financial Assets
(ii) Loans 50,000
(f) Deferred tax assets (net) 60,000
(2) Current assets
(a) Inventories 2 8,30,000
(i) Trade receivables 3 9,88,750
(ii) Cash and cash equivalents 4 3,77,500
(c) Other current assets 5 15,000
EQUITY
LIABILITIES
Current liabilities
(i) Borrowings 1,00,000
(ii) Trade Payables:- 8 8,28,400
(d) Current Tax Liabilities (Net) 9 54,450
Notes to Balance sheet
Particulars Amount
1 Property, Plant and Equipment
(1) Land 3,00,000
(2) Building cost 15,00,000
Less: Depreciation 5,00,000 10,00,000
(3) Machinery 20,00,000

(4) Furniture 1,75,000

Less: Depreciation 45,000 1,30,000
28,90,000
2 Inventories
Raw Material 2,84,800
Work-in-Progress 3,54,500
Loose Tools 1,40,000
Stores and Spares 50,700
8,30,000
3 Trade receivables
9,88,750
4 Cash and cash equivalents
Cash in hand 77,500
Cash at bank : 3,00,000
3,77,500
5 Other Current Assets
Prepaid Expenses 15,000
15,000
6 Other Equity
(1) Capital reserve 3,00,000
(2) Securities premium account 1,25,000
(3) Debentures Redemption reserve 1,00,000
(4) General Reserve 3,50,000
(5) Surplus
Opening balance 1,93,400
Profit for the year 5,50,000
7,43,400
Interim Dividend paid (50,000) 6,93,400
15,68,400
7 Non-Current borrowings
12% secured debentures 7,20,000
Bank loan (unsecured) 4,80,000
12,00,000
8 Trade payables
Creditors for goods 8,28,400
8,28,400
9 Current Tax Liabilities (Net)
Provision for Taxation 2,45,000
(-) Advance Payment of Tax (1,90,550)

54,450
12.11 FORMAT OF STATEMENT OF PROFIT AND LOSS
PART II – STATEMENT OF PROFIT AND LOSS

Profit and loss statement for the year ended ………………………
Particulars Note Figures Figures as
No. as at the at the end
end of of the
current previous
reporting reporting
period period
1 2 3 4
I Revenue from operations
II Other Income
III Total Income (I + II)
IV Expenses:
Cost of materials consumed
Purchases of Stock-in-Trade
Changes in inventories of finished goods work-
in-progress and Stock-in-Trade
Employee benefits expense
Finance costs
Depreciation and amortization expense
Other expenses
Total Expenses (IV)
V Profit before exceptional and tax (III - IV)
VI Exceptional items
VII Profit/(Loss) before tax (V - VI)
VIII Tax expense:
(1) Current tax
(2) Deferred tax
IX Profit (Loss) for the period from continuing
operations (VII-VIII)
X Profit/(loss) from discontinuing operations
XI Tax expense of discontinuing operations
XII Profit/(loss) from Discontinuing operations
(after tax) (X-XI)
XIII Profit (Loss) for the period (IX + XII)
XIV Other Comprehensive Income
A. (i) Items that will not be reclassified to profit
or loss
(ii) Income tax relating to items that will not be
reclassified to profit or loss
B. (i) Items that will be reclassified to profit or
loss
(ii) income tax relating to items that will be
reclassified to profit or loss
XV Total Comprehensive Income for the period
(XIII+XIV)Comprising Profit (Loss) and
Other comprehensive Income for the period )
XVI Earnings per equity share (for continuing
operation):
(1) Basic
(2) Diluted
XVII Earnings per equity share (for discontinuing
operation):
(1) Basic
(2) Diluted
XVIII Earnings per equity share (for discontinued &
continuing operation)):
(1) Basic
(2) Diluted
12.12 GENERAL INSTRUCTIONS FOR PREPARATION OF STATEMENT OF PROFIT AND LOSS

The statement of Profit and Loss Account given above can be better understood if we
read the instructions thoroughly as given in the schedule. These general instructions are
reproduced as below:
1. The provisions of this Part shall apply to the income and expenditure account, in like
manner as they apply to a Statement of Profit and Loss,
2. The Statement of Profit and Loss shall include:
(1) Profit of loss for the Period;
(2) Other Comprehensive Income for the period
The sum of (1) and (2) above is ‘Total Comprehensive Income"
3. Revenue from operations shall disclose separately in the notes
(a) Sale of products (including Excise Duty);
(b) Sale of services; and
(c) Other operating revenues.
4. Finance Costs: Finance costs shall be classified as-

(a) Interest;
(b) Dividend on redeemable preferences shares;
(c) Exchange differences regarded as an adjustment to borrowing costs; and
(d) Other borrowing costs (specify nature).
5. Other income: other income shall be classified as-

(a) interest Income;
(b) Dividend Income; and
(c) Other non-operating income (net of expenses directly attributable to such income)
6. Other Comprehensive Income shall be classified into-

(A) Items that will not be reclassified to profit or loss
(i) Changes in revaluation surplus;
(ii) Remeasurment of the defined benefit plans;
(iii) Equity Instruments through Other Comprehensive Income;
(iv) Fair value changes relating to own credit risk of financial liabilities
designated at fair value through profit or loss;
(v) Share of Other Comprehensive Income in Associates and Joint Ventures, to
the extent not to be classified into profit or loss; and

(v) Share of Other Comprehensive Income in Associates and Joint Ventures, to
the extent not to be classified into profit or loss; and
(vi) Others (specify nature).
(B) Items that will be reclassified to profit or loss;
(i) Exchange differences in translating the financial statements of a foreign
operation;
(ii) Debt instruments through Other Comprehensive Income;
(iiii) The effective portion of gains and loss on hedging instruments in a cash flow
hedge;
(iv) Share of other comprehensive income in Associates and Joint Ventures, to
the extent to be classified into profit or loss; and
(v) Others (specify nature)
7. Additional Information: A Company shall disclose by way of notes, additional

information regarding aggregate expenditure and income on the following items:
(a) employee Benefits expense (showing separately (i) salaries and wages, (ii)
contribution to provident and other funds, (iii) share based payments to
employees, (iv) staff welfare expenses).
(b) Depreciation and amortization expense;
(c) any item of income or expenditure which exceeds one per cent of the
revenue from operations or Rs.10,00,000, whichever is higher, in addition to
the consideration of 'materiality’s specified in clause 7 of the General
Instructions for Preparation of Financial Statements of a Company;
(d) Interest Income;
(e) Interest Expense
(f) Dividend income;
(g) Net gain or loss on sale of investments;
(h) Net gain or loss on foreign currency transaction and translation (other than
considered as finance cost);
(i) Payments to the auditor as (a) auditor, (b) for taxation matters, (c) for
company law matters, (d) for other services, (e) for reimbursement of
expenses;
(j) in case of companies covered under section 135, amount of expenditure
incurred on corporate social responsibility activities; and
(k) Details of items of exceptional nature;
8. Changes in Regulatory Deferral Account Balances shall be presented in the Statement of

Profit and Loss in accordance with the relevant Indian Accounting Standards

GRADED ILLUSTRATIONS on Statement of Profit and Loss A/c

Illustration 12.4
The following balances are available in the trial balance of Sujit Trading Limited:
Particulars Amount (Rs.)
Sales of Product 5,20,000
Opening stock 60,000
Closing stock 90,000
Purchases 2,40,000
Salaries 60,000
Director’s Fees (Not in service) 10,000
Rent 26,000
Depreciation on Building 8,00
Depreciation on Machinery 12,000
Bad debts 6,000
Debenture Interest 28,000
Sundry Expenses 18,000
Interest on Investments 12,000
Current Tax 46,200
Deferred Tax 9,240
You are required to prepare statement of Profit and Loss for the year ending 31 st March, 2019.
Consider the equity share capital of the company as 10,000 shares @ Rs. 10 each.
Solution
Sujit Trading Limited

Statement of Profit and Loss
For the year ended 31st March, 2019
Particulars Note Rs.
Revenue from operations 1 5,20,000
Other Income 2 12,000
Total Revenue 5,32,000
Expenses:
Purchases 2,40,000
Change in inventories 3 (30,000)
Employee benefit expenses 4 60,000
Financial Cost 5 28,000
Depreciation and amortization Expense 6 20,000
Other expenses 7 60,000
Total expenses 3,78,000
Profit before tax 1,54,000
Total expense:
Current tax 45,600
Deferred Tax 9,240
Profit after tax 98,560
Earnings per shares
Basic and Diluted (98,560/10,000) Rs. 9.856
Notes to Accounts
Rs.
1 Revenue from operations
Sales of Products 5,20,000
5,20,000
2 Other Income
Interest on Investments 12,000
12,000
3 Change in Stock-in-trade
Opening stock of stock-in--trade 60,000
Closing stock of stock-in--trade 90,000
Increase in Stock-in-trade (30,000)
4 Employee benefit expenses
Wages and Salaries 60,000
60,000

5 Finance Costs
Interest on Debentures 28,000
28,000
6 Depreciation and Amortization Expenses
Depreciation on buildings 8,000
Depreciation on Office Machinery 12,000
20,000
7 Other Expenses
Director’s fees 10,000
Rent 26,000
Bad Debts 6,000
Miscellaneous Expenses 18,000
Total 60,000
Illustration 12.5
The Equity share capital of the Intro Limited is 20,000 shares @ Rs. 10 each. The following are the
balances as at 31st March, 2019:
Balances Debit
Stock 1st April, 2018 75,000
Closing Stock 88,000
Purchases returns 10000
Purchases 2,45,950
Sales 3,40,000
Wages 30,000
Discount 3,000
Salaries 8,400
Rent 4,800
Sundry expenses 7,050
Provision for Bad Debts 510
Current Tax 17,010
Deferred Tax 6,000
Directors Fee 300
Managerial Remuneration (As per terms of contract) 6,000
Depreciation on Plant and Machinery 4,350
Depreciation on Furniture 1,700
Amortization on Patents and Trade Marks 240
Prepare Statement of Profit and Loss for the year ended 31 March, 2019 as per Division II to Schedule III of
Companies Act, 2013.
Solution:
Intro Limited
For the year ending 31st March, 2019
Particulars Note No. Amount(Rs.)
Revenue from operation (Sales) 3,40,000
Other Income (Discount) 3,000
Expenses:
Cost of materials consumed Nil
Purchase of stock in trade 1 2,35,950
Changes in inventories of stock in trade 2 (13,000)
Employee benefit expense 3 38,700
Finance cost
Depreciation and amortization expense 4 6,290
Other expenses 5 12,660
Profit before tax (Total Revenue – Total Expenses) 56,700
Tax Expenses
(1) Current Tax 17,010
(2) Deferred tax 6,000
Profit for the year 33,690
Earnings per share (Basic) [33,960/20,000] 1.6845
Notes to Accounts
No. Particulars Amount
1 Purchase of stock in trade 2,45,950
Less: Returns 10,000
2,35,950
2 Changes in inventories of stock in trade
Opening stock 75,000
Closing stock (88,000)
Increase in stock (13,000)
3 Employee benefit expense
Wages 30,000
Salaries 8,400
Director’s Fees 300
38,700
4 Depreciation and Amortization Expense
Depreciation of Plant and Machinery 4,350
Depreciation of Furniture and Fitting 1,700
Amortization of Patents and Trade Marks 240
6,290
5 Other expenses
Rent 4,800
Sundry expenses 7,050
Provision for doubtful debts 510
Managerial Remuneration 300
12,660
Illustration 12.9
ABC Ltd. has an authorised capital of 50 lakhs divided into 5,00,000 equity shares of 10 each. Their books
show the following balances as on 31 March, 2019
Particulars Amount
Inventory (1.4.2018) 6,65,000
Closing Stock 7,08,000
Discounts and Rebates 30,000
Rates, Taxes and insurance 55,000
Purchases 12,90,000
Wages 13,68,000
Depreciation of plant 37,500
Depreciation on Engineering Tools 30,000
Depreciation on furniture 15,000
Depreciation on plant 37,500
Advertisement 15,000
Commission and Brokerage 67,500
Business expenses Paid 56,000
Business expenses Outstanding 36,000
Interest (Bank loan) 91,000
Debentures interest 20,000
Sales 36,17,000
Rent Received 30,000
Transfer fees received 6,500
Repair to building 56,500
Bad debts 25,000
Current Tax 1,20,000
Deferred Tax 62,000
You are required to prepare statement of profit and loss for the year ended 31 March, 2019 .
Solution:
ABC Limited
Statement of profit and Loss
For the year ending 31 March 2019
Particulars Note Amount
Revenue from operations 1 36,17,000
Other income 2 36,500
Total income 36,53,500
Expenses
Purchase of Stock in Hand 12,90,000
Change in Inventories 3 (43,000)

Employee Benefit Expenses 4 13,93,000
Finance Cost 5 1,11,000
Depreciation and Amortization Expenses 6 1,20,000
Other Expenses 7 3,41,000
Profit Before Tax 4,41,500
Current Tax (1,20,000)
Deferred Tax (62,000)
Profit After Tax 2,59,500
Earnings Per Share (2,59,500 / 50,000) 3.46
Notes to Accounts
Particulars
1 Revenue from operations
Sales 36,17,000
2 Other income
Rent 30,000
Transfer fees 6,500
36,500
3 Change in Inventories
Opening inventory 6,65,000
Closing inventory 7,08,000
Increase in Inventory (43,000)
4 Employee benefit expenses
Wages (Paid Rs. 13,68,000 + Outstanding Rs. 25,000) 13,93,000
13,93,000
5 Finance cost
Interest on debentures 20,000
Interest on bank loan 91,000
1,11,000
6 Depreciation and Amortization
Depreciation on Plant 37,500
Depreciation on Engineering tools 30,000
Depreciation on Furniture 15,000
Amortization of Patents 37,500
1,20,000
7 Other Expenses
Discount and rebate 30,000
Rates and taxes 55,000
Advertisement 15,000
Commission 67,500
Business expenses (Paid Rs. 56,000 + Outstanding Rs. 36,000) 92,000
Repair to building 56,500
Bad debts 25,000
3,41,000

Illustration 12.7 [Comprehensive Problem]

The following are the balance of Mitra Pal Ltd. as on 31stMarch, 2019
Credit Amount Debit Amount (Rs.)
(Rs.)
Land 31,17,000 Share capital 40,00,000
Building 33,00,000 12% Debentures 30,00,000
Stock (As on 1-4-2018) 7,50,000 Surplus 2,62,500
Debtors 8,70,000 Bills payable 3,70,000
Goodwill 2,50,000 Creditors 4,00,000
Cash and bank 5,06,500 Sales 42,50,000
Calls in arrear 75,000 General reserve 4,30,000
Interim dividend paid 3,92,500 Bad debt provision on 1-4-18 35,000
Purchases 18,50,000
Preliminary expenses 5,000
wages 9,79,800
General expenses 68,350
Salaries 2,02,250
Bad debts 21,100
Debenture interest paid 3,60,000
1,27,47,500 1,27,47,500
Additional information:
(a) Depreciate Building by Rs. 4,95,000.
(a) Write off preliminary expenses.
(b) Create 5% provision on debtors for doubtful debts.
(c) Provide for Income Tax at Rs.2,30,000 (Current Tax)
(d) Stock on 31st March, 2019 was 9,50,000.
Prepare final accounts of the company as per Division II to Schedule III of Companies Act, 2013.
Solution
Balance sheet of Mitra Pal Ltd. as at 31st March, 2019
No. end of current
reporting period
1 2 3
ASSETS
(b) Goodwill 2,50,000
(2) Current assets
(a) Inventories 9,50,000
(i) Trade receivables 2 8,26,500
(iii) Cash and cash equivalents 5,06,500
EQUITY
LIABILITIES
Current liabilities
(i) Trade Payables:- 5 7,70,000
(d) Current Tax Liabilities (Net) 6 2,30,000

For the Year Ended 31st March, 2019
Particulars Note
No.
Revenue from operation (Sales of goods) 42,50,000
Other Income 42,50,000
Expenses:
Cost of materials consumed
Purchase of stock in trade 18,50,000
Changes in inventories of finished goods
Work in progress and stock in trade 7 (2,00,000)
Employee benefit expense 8 11,82,050
Finance cost 9 3,60,000
Depreciation and expense 10 4,95,000
Other expenses 11 1,02,950
Total expenses (37,90,000)
Profit before tax 4,60,000

Tax Expenses
Profit for the year 2,30,000
Notes to Accounts
Particulars Amount
1 Property, Plant and Equipment
(a) Land 31,17,000
(b) Building 33,00,000
59,22,000
2 Trade Receivables
Less: Provision for doubtful debts (43,500)
8,26,500
3 OTHER EQUITY
(a) General Reserve 4,30,000
(b) surplus
Balance brought Forward 2,62,500
(+) Profit for the year 2,30,000
Available for 4,92,500
Appropriation
Used for Interim Dividend (3,92,500) 1,00,000
5,30,000
4 Long term Borrowings
12% (secured) Debentures 30,00,000
5 Trade payables
Creditors for goods 4,00,000
Bills payable 3,70,000
7,70,000
6 Current Tax Liability
For income tax 2,30,000
2,30,000
7 Change of inventories
Opening stock 7,50,000
Closing stock (9,50,000)
(2,00,000)
8 Employee benefit expense
Wages 9,79,800
salaries 2,02,250
11,82,050
9 Finance cost
Debenture interest 3,60,000

3,60,000
10 Depreciation Expense
On plant 4,95,000
4,95,000
11 Other expenses
Preliminary expenses 5,000
General expenses 68,350
Bad debts 21,100
Provision for Doubtful debts 8,500
1,02,950

QUESTION BANK
Objective Type questions
State whether the following statements are True (T) of False (F).
(1) The Companies Act, 2013 allows the companies to follow cash basis of accounting.
(2) The books of account, as per section 2(13), includes records maintained for assets and liabilities
of the company.
(3) Tax expense for a particular period should be recognised as current tax plus deferred tax.
(4) As per the format prescribed under schedule III, share application money pending allotment
appears under shareholders’ funds.
(5) The excise duty is added while calculating revenue from operations.
(6) The schedule III of Companies Act, 2013 is related with final accounts of company.
(7) The permanent differences are also considered for Deferred tax purposes.
(8) The staff welfare expenses are disclosed under staff benefit expenses.
(9) The provision for tax is shown in the balance sheet as a part of short term provisions.
(10) Dividends can be declared out of capital reserves.
[ Ans.: True:- 2,3,6,8,9 False:-1,4,5,7,10 ]
Theoretical Questions
1. State the legal provisions contained in Companies Act, 2013 regarding books of account of
company.
2. What are the components of Financial Statement as defined under section 2(40) of Companies Act,
2013?
3. Is it mandatory for all types of companies to prepare Cash Flow Statement as part of their financial
statements?
4. “The Schedule III has been amended by the Central Government many times.” Discuss the present
status of the Schedule.
5. The companies which are required to follow Ind AS, should prepare their Financial Statements as
per Division III. Explain in detail
:
Practical Problems on Preparation of Balance Sheet only
Q.1 ABC Limited is a listed company. The following is the trial balance extracted on 31 March, 2019:
Particulars Debit Credit
Closing Stock (31-3-2019) 1,24,840
Goodwill 70,000
Investment 51,000
Capital Work-in-Progress 45,000
Vehicles 63,000
Debentures 70,000
Borrowings (Non-Current) 51,700
Current Tax Asset (Net) 14,290
Bank loan at 18% 50,000
Debtors and Creditors 1,64,400 92,200
Surplus, 1 April 2018 8,640
Bank current Account 1,06,860
Cash in hand 5,920
Leasehold factory 1,64,210
Plant and Machinery (cost) 1,28,400
Loose tools (stock on 31-3-19) 10,000
Share capital 6,50,000
Calls in arrear 1,000
Office furniture 5,000
Provision for Depreciation on Plant 19,260
Provision for Depreciation on furniture 500
Provision for bad and Doubtful debts 8,500
Provision for Discount on Debtors 3,120
9,53,920 9,53,920
Prepare Balance Sheet as at 31st March, 2019 as per the formats given in Division II oto
Schedule III of Companies Act, 2013.
[Ans.: Total of Balance-Sheet: Rs. 9,21,540 ]

Q.2 Following is the Trial balance of Prabhat Ltd. as on 31 March, 2019:
Debit balances Amount Credit balances Amount
Fixed assets (Gross Block) Provision for Depreciation 2,15,000
Land 2,15,000 Equity share capital 5,70,000
Building 4,20,000 (10 each fully paid)
Vehicle 1,75,000 Compound Financial Instrument
Furniture 1,55,000 9,65,000 Equity Component 70,000
Investments 2,50,000 Debt Component 30,000 1,00,000
Sundry debtors 1,22,500 Surplus bal. 1-4-18 1,48,500
Staff advances 1,00,000 Securities premium 30,000
Software 20,000 Capital Redemption Reserve 2,00,000
Advance tax 80,000 General reserve 75,000
Prepaid expenses 45,000 8% Debentures 5,25,000
Goodwill 70,000 Loan from Director 10,000
Advance to suppliers 27,500 Loan from subsidiary co. 70,000
Cash in hand 12,500 Sundry creditors 58,500
Brand 30,000 Bills payable 21,500
Bank balance 1,10,000 Provision for taxation 62,500
Stock of RM 2,50,000 Net Profit for the Current Year 1,31,500
Stock of WIP 50,000
Stock of FG 75,000
Design and Prototypes 10,000
21,47,500 21,47,500
After considering the above Trial Balance, you are required prepare Balance sheet of the company as on
31 March, 2019 as per Division II to Schedule III requirements.
[ Ans.: Total of Balance-Sheet: Rs. 20,85,000 ]
Q.3 Chambal Ltd. furnishes you with the following trial balance as on 31 March, 2019:
Particulars Debit Credit

Equity share capital : shares of 10 each fully paid 50,00,000
Capital redemption reserve 20,00,000
Interim dividend paid 1,80,000
General reserve as per last balance sheet 26,70,000
Cash on hand 20,000
Bank of India – current account 1,00,000
Customers’ dues – within 6 months 40,00,000
Customers’ dues – over 6 months 2,00,000
Provisions for bad debts 2,00,000
Advances (considered goods) 11,50,000
Prepaid expenses 50,000
Advance income received 60,000
Sundry creditors 10,00,000
Fixed assets:
- Cost 78,00,000
- Provision for depreciation 15,40,000
Inventory at cost 10,00,000
Advance Payment of Tax 6,00,000
Provision for Taxation 6,30,000
Surplus brought forward from last year 1,00,000
Surplus for the year (after taxation) 19,00,000
1,51,00,000 1,51,00,000
Ignore Corporate Dividend Tax on Interim Dividend paid.
You are asked to prepare the balance sheet of Chambal Ltd. as on 31 March, 2019 as per Division II to
Schedule III of Companies Act, 2013..
[ Ans.: Total of Balance-Sheet: Rs. 141,20,000 ]

Practical Problems on Preparation of Statement of Profit and Loss
Q.4 The following is the extract trial balance of ABC Company as at 31 March 2019.
Debit and Credit Balances Amount
Sales 1,56,20,000
Purchases 87,70,000
Salaries 20,00,000
Selling expenses 22,00,000
Rent Paid 1,00,000
Interest on debentures 1,00,000
Commission 1,00,000
Depreciation on plant 3,75,000
Depreciation on furniture 1,00,000
Opening Stock (1-4-2018) 4,50,000
Closing Stock (31-3-2019) 20,00,000
Bad debts 50,000
Other Income 80,000
Cost of Material Consumed 4,00,000
Deferred Tax 90,000
Interest Paid 21,000
Litigation Settlement (Exceptional) 1,28,000
Profit from Discontinued Operations 4,00,000
Tax on profit from Discontinued Operations 1,60,000
You are required to prepare Statement of Profit and Loss for the year ending 31-3-2019
[Ans.: Profit After Tax: Rs. 20,10,000 (Continuing Operations); Rs. 22.50.000 (For the Period)]

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Learning Outcomes

After studying this Chapter, you shall be able to understand

Did You Know MEANING OF BOOKS, PAPERS AND DOCUMENTS

Foundation Accounting 11.1 # Chapter 11 (Final accounts of Companies)

12.3 LEGAL PROVISIONS RELATING TO BOOKS OF ACCOUNTS

3. Method of Preparation: The books of account etc. must –

5. Preservation of Books of account: The books of account of every company shall be

Foundation Accounting CA. K. M. Bansal & Dr. Ritu Gupta

12.4 FINANCIAL STATEMENTS

As per section 2(40) of The Companies Act, 2013“financial statement” in relation to a

Did You Know WHEN CASH FLOW STATEMENT IS NOT MANDATORY

12.5 LEGAL PROVISIONS RELATING TO FINANCIAL STATEMENTS

Disclosure of reasons of deviation from Accounting Standards

2. Consolidated Financial Statements: Where a company has one or more subsidiaries,

Foundation Accounting CA. K. M. Bansal & Dr. Ritu Gupta

3. Laying before Annual general Meeting: At every annual general meeting of a

4. Exemption: The Central Government may, on its own or on an application by a class

5. Persons Responsible: The following persons are responsible:

6. Penalty : The following punishment for contravention of related provisions are as

12.6 SCHEDULE III TO THE COMPANIES ACT, 2013

Did You Know Amendments to Schedule III by Central Government

12.7 PRESENT STATUS of SCHEDULE III

Portion of Schedule III covered under this chapters

12.8 GENERAL INSTRUCTION FOR PREPRATION OF FINANCIAL STATEMENTS OF A COMPANY

Foundation Accounting CA. K. M. Bansal & Dr. Ritu Gupta

12.9 FORMAT OF BALANCE SHEET

PART I — BALANCE SHEET

Foundation Accounting CA. K. M. Bansal & Dr. Ritu Gupta

TOTAL EQUITY and LIABILITIES

Foundation Accounting CA. K. M. Bansal & Dr. Ritu Gupta

STATMENT OF CHANGES IN EQUITY

12.10 GENERAL INSTRUCTIONS FOR PREPARATION OF BALANCE SHEET

1. An entity shall classify an asset as current when:-

Foundation Accounting CA. K. M. Bansal & Dr. Ritu Gupta

Foundation Accounting CA. K. M. Bansal & Dr. Ritu Gupta

Foundation Accounting CA. K. M. Bansal & Dr. Ritu Gupta

Foundation Accounting CA. K. M. Bansal & Dr. Ritu Gupta

Foundation Accounting CA. K. M. Bansal & Dr. Ritu Gupta

Foundation Accounting CA. K. M. Bansal & Dr. Ritu Gupta

Foundation Accounting CA. K. M. Bansal & Dr. Ritu Gupta

Foundation Accounting CA. K. M. Bansal & Dr. Ritu Gupta

7. When a company applies an accounting policy retrospectively or makes a restatement

Foundation Accounting CA. K. M. Bansal & Dr. Ritu Gupta

ILLUSTRATIONS on Preparation of BALANCE SHEET

5 EQUITY SHARE CAPITAL

Foundation Accounting CA. K. M. Bansal & Dr. Ritu Gupta

Foundation Accounting CA. K. M. Bansal & Dr. Ritu Gupta

9 Short term borrowing

(3) Machinery 20,00,000

(4) Furniture 1,75,000

Foundation Accounting CA. K. M. Bansal & Dr. Ritu Gupta

12.11 FORMAT OF STATEMENT OF PROFIT AND LOSS

PART II – STATEMENT OF PROFIT AND LOSS

12.12 GENERAL INSTRUCTIONS FOR PREPARATION OF STATEMENT OF PROFIT AND LOSS

4. Finance Costs: Finance costs shall be classified as-

5. Other income: other income shall be classified as-

6. Other Comprehensive Income shall be classified into-

Foundation Accounting CA. K. M. Bansal & Dr. Ritu Gupta

7. Additional Information: A Company shall disclose by way of notes, additional

8. Changes in Regulatory Deferral Account Balances shall be presented in the Statement of

Foundation Accounting CA. K. M. Bansal & Dr. Ritu Gupta

GRADED ILLUSTRATIONS on Statement of Profit and Loss A/c

Sujit Trading Limited