Preparation of the Statement of Profit and Loss and Balance Sheet (As per Schedule III of Companies Act, 2013)

Table of Content

Statement of Profit and Loss (as per Division I of Schedule III)
Balance Sheet (as per Division I of Schedule III)
An Introduction to Division II of Schedule III
Exercise

Preparation of the Statement of Profit and Loss and Balance Sheet (As per Schedule III of Companies Act, 2013) - 4

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Introduction

Financial statements are compilation of financial data, collected and classified in a systematic manner according to the accounting principles, to assess the financial performance and financial position of an enterprise. These are basic and formal means through which management of an enterprise make public communication of financial information along with select quantitative details. They are structured financial representation of the financial position, performance and cash flows of an enterprise. Many users rely on the general- purpose financial statements as the major source of financial information and therefore, financial statements should be prepared and presented in accordance with their requirement. Of course, some of the users may have the power to obtain, information in addition to that contained in the financial statements. That does not undermine the dependence of the general users on the information contents of the financial statements.

Financial statements provide information that is useful to a wide range of users in making economic decisions. They show the results of the stewardship of management, or the accountability of management for the resources entrusted to it.

Types of Financial Statement

The following are the major types of financial statements prepared by entities.

Statement of Financial Performance or Income Statement
Statement of Financial State of Affairs or Balance Sheet
Statement of Changes in Financial Position
Statement of Inflow and Outflow of Cash

Regulatory Framework Related to Preparation of Financial Statements

In India, preparation and presentation of financial statements is guided by –

The Companies Act, 2013;
The Companies (Accounts) Rules 2014;
Accounting Standards (AS or Ind AS as applicable)

The relevant provisions under the above three regulatory sources are mentioned below.

a. Meaning of Financial Statements

According to Section 2(40) of Companies Act, 2013, financial statement in relation to a company, includes—

a balance sheet as at the end of the financial year;
a profit and loss account, or in case of a company carrying on any activity not for profit, an income and expenditure account for the financial year;
cash flow statement for the financial year; and
any explanatory note annexed to, or forming part of, any document referred to in sub-clause (i) to sub- clause (iv).

However, the financial statement, with respect to one person company, small company and dormant company (Section 455) may not include cash flow statement.

b. Meaning of Financial Year

According to Section 2(41), financial year, in relation to any company or body corporate, means the period ending on the 31st day of march every year. Where a company has been incorporated on or after 1st day of January of a year, the first financial year will end on 31st day of March of the following year. If a company or body corporate which is a holding company or a subsidiary or associate company of a company incorporated outside India and is required to follow a different financial year for consolidation of its accounts outside India, the Tribunal may, if it is satisfied, allow any period as its financial year, whether or not that period is a year.

c. Frequency of Financial Statements

Financial statements are prepared as -

Annual financial statements (i.e., once a financial year)
Quarterly financial statements which are prepared by listed companies on quarterly basis as per SEBI

d. Preparation of Financial Statements by Entities Companies Act, 2013

Section 129(1): The financial statements shall give a true and fair view of the state of affairs of the company or companies, comply with the accounting standards notified under section 133 and shall be in the form or forms as may be provided for different class or classes of companies in Schedule III:

Provided that the items contained in such financial statements shall be in accordance with the accounting standards:

Provided further that nothing contained in this sub-section shall apply to any insurance or banking company or any company engaged in the generation or supply of electricity, or to any other class of company for which a form of financial statement has been specified in or under the Act governing such class of company:

Section 129(2): 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.

Section 129(3): Where a company has one or more subsidiaries, it shall, in addition to financial statements provided under sub-section (2), prepare a consolidated financial statement of the company and of all the subsidiaries in the same form and manner as that of its own which shall also be laid before the annual general meeting of the company along with the laying of its financial statement under sub-section (2):

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 subsidiary or subsidiaries in such form may be prescribed:

Section 129(4): The provisions of this Act applicable to the preparation, adoption and audit of the financial statements of a holding company shall, mutatis mutandis, apply to the consolidated financial statements referred to in sub-section (3).

Section 129(5): Without prejudice to sub-section (1), where the financial statements of a company do not comply with the accounting standards referred to in sub-section (1), the company shall disclose in its financial statements, the deviation from the accounting standards, the reasons for such deviation and the financial effects, if any, arising out of such deviation.

Section 137(1): A copy of the financial statements, including consolidated financial statement, if any, along with all the documents which are required to be or attached to such financial statements under this Act, duly adopted at the annual general meeting of the company, shall be filed with the Registrar within thirty days of the date of annual general meeting in such manner, with such fees or additional fees as may be prescribed.

Companies (Accounts) Rules, 2014

Rule 4A: The financial statements shall be in the form specified in Schedule III to the Act and comply with Accounting Standards or Indian Accounting Standards as applicable:

Provided that the items contained in the financial statements shall be prepared in accordance with the definitions and other requirements specified in the Accounting Standards or the Indian Accounting Standards, as the case may be.

Rule 12(1): Every company shall file the financial statements with Registrar together with Form 2AOC-4 and the consolidated financial statements, if any, with form 2AOC-4 CFS.

Rule 12(2): The class of companies as may be notified by the Central Government from time to time, shall mandatorily file their financial statement in Extensible Business Reporting Language (XBRL) format and the Central Government may specify the manner of such filing under such notification for such class of companies.

Form and Content of Financial Statements

The form and content of Financial Statements have been specified in Schedule III of the Companies Act, 2013. The objective of such specification is to improve the comparability of financial information across entities.

Schedule III of the Companies Act, 2013 comprises of three divisions as follows:

Division I: General Instructions for Preparation of Balance Sheet and Statement of Profit and Loss of a company whose Financial Statements are required to comply with the Companies (Accounting Standards) Rules, 2021.
Division II: General Instructions for Preparation of Financial Statements of a company whose Financial Statements are drawn up in compliance of the Companies (Indian Accounting Standards) Rules,
Division III: General Instructions 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.

Note: In this Module, preparation of financial statements has been discussed primarily as per Division I i.e., for whom Financial Statements are required to comply with the Companies (Accounting Standards) Rules, 2006.

Division I of Schedule III of Companies Act, 2013

Relevant provisions under ‘General Instructions for Preparation of Balance Sheet and Statement of Profit and Loss of a Company’ as specified in Schedule III, Division I are given below:

a. 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

b. The disclosure requirements specified in this Schedule are in addition to and not in substitution of the disclosure requirements specified in the Accounting Standards prescribed under the Companies Act, 2013. Additional disclosures specified in the Accounting Standards shall be made in the notes to accounts 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 shall be made in the notes to accounts in addition to the requirements set out in this Schedule.

c. 1. Notes to accounts shall contain information in addition to that presented in the Financial Statements and shall provide where required

narrative descriptions or disaggregations of items recognised in those statements; and
information about items that do not qualify for recognition in those

2. Each item on the face of the Balance Sheet and Statement of Profit and Loss shall be cross-referenced to any related information in the notes to accounts. In preparing the Financial Statements including the notes to accounts, 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.

d. 1. Depending upon the Total Income of the company, the figures appearing in the Financial Statements shall be rounded off as given below:

When total income is less than one hundred crore rupees, rounding off shall be done to the nearest hundreds, thousands, lakhs or millions, or decimals thereof.
When total income is one hundred crore rupees or more, rounding off shall be done to the nearest lakhs, millions or crores, or decimals thereof.

2.Once a unit of measurement is used, it should be used uniformly in the Financial Statements.

e. Except in the case of the first Financial Statements laid before the Company (after its incorporation) the corresponding amounts (comparatives) for the immediately preceding reporting period for all items shown in the Financial Statements including notes shall also be given.

f. For the purpose of this Schedule, the terms used herein shall be as per the applicable Accounting Standards. Division I of Schedule III comprises of two parts as follows:

Part I, which provides the minimum disclosure requirements for the Balance Sheet; and
Part II, which provides the minimum disclosure requirements for the Statement of Profit and Loss.

These have been discussed in detail in the following sections.

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1. Statement of Profit and Loss (as per Division of Schedule III )

Statement of Profit and Loss (as per Division I of Schedule III)

The Statement of Profit and Loss of a company is the statement of financial performance of the entity and is also known as the Income Statement. The objective of preparing this statement is to determine the profit (or loss) of a company for a particular reporting period.

Following is the pro-forma of the Statement of Profit and Loss suggested in Part II of Division I of Schedule III.

Name of the Company: …………………………………………………

Statement of Profit and Loss for the year ended:….................................................................. (Amount in ₹)

	Particulars	Note No.	Figures for the Current Reporting Period	Figures for the Previous Reporting Period
	1	2	3	4
I	Revenue from Operations		XXX	XXX
II	Other Income		XXX	XXX
III	Total Income (I+II)		XXX	XXX
IV	Expenses:
	Cost of Materials Consumed		XXX	XXX
	Purchases of Stock-in-Trade		XXX	XXX
	Changes in Inventories of Finished Goods / Work-in-progress and Stock-in-Trade		XXX	XXX
	Employee Benefits Expense		XXX	XXX
	Finance Costs		XXX	XXX
	Depreciation and Amortization Expense		XXX	XXX
	Other Expenses		XXX	XXX
	Total Expenses		XXX	XXX
V	Profit before Exceptional & Extraordinary Items and Tax		XXX	XXX
VI	Exceptional Items		XXX	XXX
VII	Profit before Extraordinary Items and TAX (V-VI)		XXX	XXX
VIII	Extraordinary Items		XXX	XXX
IX	Profit before Tax (VII-VIII)		XXX	XXX
X	Tax Expenses		XXX	XXX
XI	Profit / (Loss) for the period from Continuing Operations (IX -X)		XXX	XXX
XII	Profit/(Loss) from Discontinuing Operations		XXX	XXX
XIII	Tax Expense of Discontinuing Operations		XXX	XXX
XIV	Profit/(Loss) from Discontinuing Operations (After Tax) (XII-XIII)		XXX	XXX
XV	Profit / (Loss) for the period (XI + XIV)		XXX	XXX
XVI	Earnings per Equity Share:
	1. Basic		XXX	XXX
	2. Diluted		XXX	XXX

General Instructions for preparation of Statement of Profit and Loss

Item	Description
1. Sec.25 Companies	The provisions of this Part shall apply to the Income and Expenditure Account referred to in Sec. 129 of the Act, in like manner as they apply to a Statement of Profit and Loss.
2. Revenue from Operations	For Company other than a Finance Company: Revenue from Operations shall disclose separately in the Notes, Revenue from –
	a. Sale of Products
	b. Sale of Service
	c. Grants or Dominants received (relevant for Section 8 companies)
	d. Other Operating Revenues
	e. Less: Excise Duty
	For Finance Company: Revenue from Operations shall include Revenue from:
	a. Interest
	b. Other Financial Service
	Revenue under each of the above heads shall be disclosed separately by way of Notes to Accounts to the extent applicable.
3. Finance Costs	Finance Costs shall be classified as –
	a. Interest Expenses
	b. Other Borrowing Cost
	c. Applicable Net Gain / Loss on Foreign Currency Transactions and Translation
4. Other Income	Other Income shall be classified as –
	Interest Income (in case of a Company other than a Finance Company)
	Dividend Income
	Net Gain/Loss on Sale of Investment
	Other Non-Operating Income (Net of Expenses directly attributable to such income)

Note: Other operating revenues include Discount Received, Bad Debt Recovery etc.

Additional Information: A Company shall disclose, by way of Notes, additional information regarding Aggregate Expenditure and Income on the following items.

i. Employee Benefits, Expense, Income Items,

Employee Benefits Expense [showing separately – (i) Salaries & Wages, (ii) Contribution to PF and Other Funds, (iii) Expense on ESOP and Employee Stock Purchase Plan (ESPP), (iv) Staff Welfare Expenses];
Depreciation and Amortization Expenses;
Any item of Income of Expenditure which exceeds 1% of Revenue from Operations or ₹ 1,00,000 whichever is higher;
Interest Income;
Interest Expense;
Dividend Income;
Net Gain / Loss on Sale of Investments;
Adjustments to the Carrying Amount of Investments;
Net Gain/Loss on Foreign Currency Transaction & Translation (other than considered as Finance Cost);
Payments to the Auditor as –
1. Auditor,
2. For Taxation Matters,
3. For Company Law Matters,
4. For Management Services,
5. For other Services,
6. For Reimbursement of Expenses;
In case of Companies covered under Section 135, amount of expenditure incurred on corporate social responsibility activities;
Details of items of Exceptional and Extraordinary Nature;
Prior Period Items.;

ii. Materials, Goods, Services,

In the case of Manufacturing Companies –
- Raw materials under broad heads.
- Goods purchased under broad heads.
In the case of trading companies, purchases in respect of goods traded in by the company under broad heads.
In the case of companies rendering or supplying services, gross income derived from services rendered or supplied, under broad heads.
- In the case of a company, which falls under more than one of the categories mentioned in (a), (b) and (c) above, it shall be sufficient compliance with the requirements herein if purchases, sales and consumption of raw material and the gross income from services rendered is shown under broad head.
In the case of other companies, gross Income derived under broad heads.

iii. In the case of all concerns having Works-in-Progress, Works-in-Progress under broad

iv. Reserves – Creation & Utilisation

The aggregate, if material, of any amounts set aside or proposed to be set aside, to reserve, but not including provisions made to meet any specific liability, contingency or commitment known to exist at the date as to which the Balance Sheet is made up.
The aggregate, if material, of any amounts withdrawn from such reserves.

v. Provision – Creation & Utilisation:

The aggregate, if material, of the amounts set aside to provisions made for meeting specific liabilities, contingencies or commitments.
The aggregate, if material, of the amounts withdrawn from such provisions, as no longer required.

vi. Expenses, : Expenditure incurred on each of the following items, separately for each item:

Consumption of Stores and Spare Parts;
Power and Fuel;
Rent;
Repairs to Buildings;
Repairs to Machinery;
Insurance;
Rates and Taxes, excluding, Taxes on Income,
Miscellaneous Expenses

vii. Subsidiaries Information:

Dividends from subsidiary
Provisions for losses of subsidiary

viii. FOREX Information: The P&L A/c shall also contain, by way of a Note, the following Information, namely –

Value of imports calculated on cif basis by the company during the financial year in respect of –
1. raw materials,
2. components and spare parts,
3. capital goods.
Expenditure in foreign currency during the financial year on account of royalty, know-how, professional and consultation fees, interest, and other matters,
Total value if all imported raw materials, spare parts and components consumed during the financial year and the total value of all indigenous raw materials, spare parts and components similarly consumed and the percentage of each to the total consumption,
Amount remitted during the year in foreign currencies on account of dividends with a specific mention of the total number of non-resident shareholders, the total number of shares held by them on which the dividends were due and the year to which the dividends
Earnings in foreign exchange classified under the following heads, namely-

Export of goods calculated on fob basis,
Royalty, know-how, professional & consultation fees,
Interest and dividend,
Other income, indicating the nature

Note: Broad heads shall be decided taking into account the concept of Materiality and Presentation of True and Fair view of Financial Statements.

ix. Undisclosed income

The Company shall give details of any transaction not recorded in the books of accounts that has been surrendered or disclosed as income during the year in the tax assessments under the Income Tax Act, 1961 (such as, search or survey or any other relevant provisions of the Income Tax Act, 1961), unless there is immunity for disclosure under any scheme and also shall state whether the previously unrecorded income and related assets have been properly recorded in the books of account during the year.;

x. Corporate Social Responsibility (CSR)

Where the company covered under section 135 of the Companies Act, 2013, the following shall be disclosed with regard to CSR activities:

amount required to be spent by the company during the year,
amount of expenditure incurred,
shortfall at the end of the year,
total of previous years shortfall,
reason for shortfall,
nature of CSR activities,
details of related party transactions, g., contribution to a trust controlled by the company in relation to CSR expenditure as per relevant Accounting Standard,
where a provision is made with respect to a liability incurred by entering into a contractual obligation, the movements in the provision during the year should be shown seperately.

xi. Details of Crypto Currency or Virtual Currency

Where the Company has traded or invested in Crypto currency or Virtual Currency during the financial year, the following shall be disclosed:

profit or loss on transactions involving Crypto currency or Virtual Currency
amount of currency held as at the reporting date,
deposits or advances from any person for the purpose of trading or investing in Crypto Currency/ virtual currency.

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2. Balance Sheet (as per Division I of Schedule III)

The Balance Sheet of a company is the statement of financial affairs of the entity. The objective of preparing this statement is to determine the financial position of a company for a particular reporting period.

Following is the pro-forma of the Balance Sheet suggested in Part I of Division I of Schedule III.

Name of the Company: ……………………………………………….

Balance Sheet as at: …………………………………………………… (₹ in……)

Particulars	Note No.	Figures as at the end of Current Reporting Period	Figures as at the end of the Previous Reporting Period
I. EQUITY AND LIABILITIES
(1) Shareholders' Funds
(a) Share Capital
(b) Reserves & Surplus
(c) Money Received against Share Warrants
(2) Share Application money pending allotment
(3) Non-Current Liabilities
(a) Long Term Borrowings
(b) Deferred Tax Liabilities (Net)
(c) Other Long-Term Liabilities
(d) Long Term Provisions
(4) Current Liabilities
(a) Short Term Borrowings
(b) Trade Payables
(c) Other Current Liabilities
(d) Short Term Provisions
Total
II. ASSETS
(1) Non-Current Assets

(a) PPE and Intangible Assets
(i) Property, Plant and Equipment
(ii) Intangible Assets
(iii) Capital WIP
(iv) Intangible Assets under Development
(b) Non-Current Investment
(c) Deferred Tax Assets (Net)
(d) Long Term Loans & Advances
(e) Other Non-Current Assets
(2) Current Assets
(a) Current Investments
(b) Inventories
(c) Trade Receivables
(d) Cash & Cash Equivalents
(e) Short Term Loans & Advances
Total

General Instructions for preparation of Balance Sheet

An asset shall be classified as current when it satisfies any of the following criteria:
1. it is expected to be realised in, or is intended for sale or consumption in, the company’s normal operating cycle;
2. it is held primarily for the purpose of being traded;
3. it is expected to be realised within twelve months after the reporting date; or
4. it is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting date.

All other assets shall be classified as non-current.

An operating cycle is the time between the acquisition of assets for processing and their realisation in cash or cash Where the normal operating cycle cannot be identified, it is assumed to have a duration of twelve months.
A liability shall be classified as current when it satisfies any of the following criteria:
1. it is expected to be settled in the company’s normal operating cycle;
2. it is held primarily for the purpose of being traded;
3. it is due to be settled within twelve months after the reporting date; or
4. the company does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

All other liabilities shall be classified as non-current.

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.

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.
Disclosure Requirement

Schedules Forming Part of Financial Statements/Annual Report

A. DISCLOSURE REQUIREMENT FOR “EQUITY AND LIABILITIES” ITEMS

1. SHAREHOLDERS’ FUNDS

a. SHARE CAPITAL

Sch. III Disclosure Requirement	Points to be considered
General	Sch III deals only with presentation and disclosure requirements
	Accounting classification into Debt and Equity components is governed by the applicable Accounting Standard
	Preference Shares will have to be classified as "Share Capital" and also includes such Preference Shares of which redemption is overdue
For each Class of Share Capital (different classes of Preference Shares to be treated separately):
(i) Authorized Capital	It is the maximum number and face/par value, of each class of shares that a corporate entity may issue in accordance with its instrument of incorporation.
(ii) Number of Shares Issued, Subscribed and Fully Paid, and Subscribed but not Fully Paid	Subscribed Share Capital: "that portion of the Issued Share Capital which has actually been subscribed by the public and subsequently allotted to the shareholders by the entity. This also includes any Bonus shares issued to the Shareholders."
	Paid-up Share Capital: "that part of the Subscribed Share Capital for which consideration is cash or otherwise has been received. This also includes Bonus Shares allotted and shares issued otherwise than for cash against purchase consideration, by the corporate entity."
	If Shares are not fully called, then disclose the called up value per share.
(iii) Face/Par Value per Share	Face/Par Value, as per Capital Clause in Memorandum of Association should be disclosed.
(iv) Reconciliation of No. of Shares outstanding at the beginning and at the end	For the Amount of Share Capital;
	For comparative previous period;
	Separate statements for both Equity and Preference Shares, which should again be sub-classified and represented for each class of Share.
(v) Rights, preferences and restrictions attaching to shares including restrictions on the distribution of dividends and the repayment of capital	For Equity Share Capital, such rights/preferences/restrictions may be with voting rights, or with differential voting rights as to dividend, voting or otherwise as per Companies (Issue of Share Capital with Differential Voting Rights) Rules, 2001.
	For Preference Shares, the rights include dividend and/or capital rights. Further, Preference Shares can be cumulative, non-cumulative, redeemable, convertible, non-convertible,etc.
	All such Rights, Preferences and Restrictions attached to each class of Shares, terms of redemption, etc. should be disclosed separately.
(vi) Shares in respect of each class in the company held by its subsidiaries or associates or by the ultimate holding company in aggregate	Disclose number of shares held by the entire chain of Subsidiaries and Associates starting from the Holding Company and right up to the Ultimate Holding Company.
	All such disclosures should be made separately representing each class of Shares, (for both Equity and Preference Shares).
(g) List of shareholders holding more than 5% shares as on the Balance Sheet Date	Data for computing the 5% limit should be taken as the Balance Sheet date. So, if during the year, any Shareholder held more than 5% Equity Shares but does not hold as much at the Balance Sheet date, disclosure is not required.
	Companies should disclose the Shareholding for each class of Shares, both within Equity and Preference Shares. So, such % should be computed separately for each class of Shares.
	This information should also be given for comparative previous periods.
(h) Shares reserved for issue under options and contracts/ commitments for the sale of shares/disinvestment, including the terms and amounts	Shares under options generally arise under Promoters or Collaboration Agreements, Loan Agreements or Debenture Deeds (including Convertible Debentures), agreement to convert Preference Shares into Equity Shares, ESOPs or Contracts for supply of Capital Goods, etc.
	Disclosure is required for the number of shares, amounts and other terms for shares so reserved, such options as in respect of unissued portion of share capital.
(i) For the period of 5 years immediately preceding the date as at which the Balance Sheet is prepared	Disclose only if such event has occurred during a period of 5 years immediately preceding the current year Balance Sheet date
Aggregate number & class of shares allotted as fully paid and up pursuant to contracts(s) without payment being received in cash	The aggregate number of shares allotted or bought back
Aggregate no. and class of shares allotted as fully Paid up by way of bonus shares	If the company is in operation for a period of less than 5 years, then disclosure should cover all such earlier financial years. Not to disclose the following allotments:
Aggregate number & class of shares bought back	The following allotments are considered as Shares allotted for payment being received in cash, and hence should not be disclosed under this Clause – (a) If the subscription amount is adjusted against a bonafide debt payable in money at once by the Company, (b) Conversion of Loan into Shares in the event of default in repayment
(j) Terms of any Securities Convertible into equity/ preference shares issued along with the earliest date of conversion in descending order starting from the farthest such date	In case of Compulsorily Convertible Securities, where conversion is done in fixed tranches, all the dates of conversions are considered.
	In case of Convertible Debentures/Bonds, etc. for the purpose of simplification, reference may be made to their terms to ascertain the earliest date of conversion. These dates are required to be included in the Balance Sheet, rather than the shares.
(k) Calls Unpaid (showing aggregate value of calls unpaid by directors and officers)	Unpaid amount towards shares subscribed by the subscribers of Memorandum of Association should be considered as ‘Subscribed and paid-Up Capital’ in the Balance Sheet and the debts due from the subscribers should be appropriately disclosed as an asset in the Balance Sheet.
(l) Forfeited shares (amount originally paid up)	-----------------
(m) A company shall disclose Shareholding of Promoters	The information shall be disclosed in the format specified in Schedule III.

Illustration 1

(Reporting Authorised, Issued, Subscribed, Called up and Paid up Capital including Forfeited Shares) Authorised Capital:

Equity Share 1,00,000 Shares @ ₹100 each = ₹ 1,00,00,000. Preference Share Capital: 15% Redeemable Preference Shares, 50,000 Shares @ ₹100 each = ₹50,00,000. 18%, Convertible Preference Shares, 30,000 shares @ ₹100 each = ₹30,00,000.

Issued Capital: Equity Share 30,000 Shares @ ₹100 each, fully paid up = ₹30,00,000; 19,800 Equity Shares of

₹100 each, ₹80 called up and paid up = ₹15,84,000. Amount received on 200 shares forfeited for non-payment of allotment and first call of ₹30 and ₹40 each, final call was not made on those shares. Amount payable on application

₹10 per share.

Preference Share Capital: 15% Redeemable Preference Shares, 10,000 Shares @ ₹100 each = ₹10,00,000. 18%, Convertible Preference Shares, 20,000 shares @ ₹100 each = ₹20,00,000

How will this be shown in the Workings/Schedules, assuming first year of operation?

Solution:

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(1) (b) Reserve & Surplus

Sch. III Disclosure Requirement	Points
(a) Capital Reserves	Capital Reserve is a Reserve of a Corporate Enterprise which is not available for distribution as Dividends
	Profit on Re-issue of Forfeited Shares is basically profit of a Capital Nature and, hence, it should be credited to Capital Reserve
(b) Capital Redemption Reserve	Capital Redemption Reserve (CRR) is required to be created u/s 55 and 68 (for redemption of PSC and buyback of ESC), subject to conditions specified in the respective Sections.
(c) Securities Premium	Sch III uses the term "Securities Premium Reserve" but the Act uses the term "Securities Premium Reserve". Hence, the term used in the Act should be used.
(d) Debenture Redemption Reserve	Debenture Redemption Reserve (DRR) is required to be created u/s 71, and maintained until such Debentures are redeemed. On redemption of the Debentures, the amounts no longer necessary to be retained in this Reserve should be transferred to the General Reserve.
(e) Revaluation Reserve	Revaluation Reserve is a Reserve created on the revaluation of Assets or Net Assets of an Enterprise represented by the surplus of the estimated Replacement Cost or estimated market values over the Book Values thereof.
(f) Share Options Outstanding Account	As per The Institute of Chartered Accountants of India, Guidance Note on ESOP, Share Options Outstanding should be shown as separate line items. Under Sch III, this line item should be shown separately under Reserves & Surplus.
(g) Other Reserves (specify the nature & purpose of each Reserve and the amount in respect thereof)	This includes any other Statutory Reserves, e.g., Tonnage Tax Reserve to be created under the Income Tax Act, 1961.
(h) Surplus, i.e., balance in Statement of P&L disclosing allocations & appropriations such as dividend, bonus shares and transfer, to/from reserves (i.e., additions & deductions since last Balance Sheet date to be shown under each of specified heads)	Appropriations to the Profit for the year (including carried balance) to be presented on the main head 'Reserves and Surplus'. Under Sch III, do not neglect any appropriations, like Dividends transferred to Reserves, Bonus Shares, etc.

Notes:

Fund: A Reserve specifically represented by Earmarked Investments shall be termed as a ‘Fund’.
Profit and Loss Account (Dr.): Debit balance of Statement of P&L shall be shown as a Negative Figure under the head ‘Surplus’. Similar, the balance of ‘Reserves & Surplus’, after adjusting Negative balance of Surplus, if any, shall be shown under the head ‘Reserves & Surplus’ even if the resulting figure is in the negative.

(1) (c) Money Received against share warrants

Sch. III Disclosure Requirement	Points
To be shown as a separate line item on the face of Balance Sheet	In case of Listed Companies, Share warrants are issued to Promoters & others in terms of the Guidelines for Preferential Issues viz. SEBI (Issue of Capital and Disclosure Requirements), Guidelines, 2009.
	Effectively, Share Warrants are amounts which would ultimately form part of the Shareholder’s Funds. Since Shares are yet to be allotted against the same, these are not reflected as part of Share Capital, but as a separate line – item.

(2) Share Application Money Pending Allotment

Sch. III Disclosure Requirement	Points
To be shown as a separate line item on the face of Balance Sheet	Share Application Money not exceeding the Issued Capital and to the extent not refundable, is to be disclosed as a separate line item after “Share Holders Funds” and before “Non-Current Liabilities."
	If the company’s Issued Capital is more than the Authorized Capital, and approval of increase in Authorized Capital is pending, the amount of Share Application Money received over and above the Authorized Capital should be shown under the head “Other Current Liabilities".
	The amount shown as ‘Share Application Money Pending Allotment’ will not include Share Application Money to the extent refundable. For example, the amount in excess of Issued Capital, or where Minimum Subscription requirement is not met. Such amount will have to be shown separately under ‘Other Current Liabilities’.
	Calls Paid in Advance are to be shown under “Other Current Liabilities”. The amount of interest which may accrue on such advance should also is to be reflected as a Liability.

(3) Non-Current Liabilities

(a) Long Term Borrowings

Sch. III Disclosure Requirement	Points
Long-Term Borrowings shall be classified as - (i)Bonds/Debentures,	------
(ii) terms Loans - 1. from Banks; and 2. from Other Parties,	Loans with repayment period beyond 36 months are usually known as “Term Loans”. So, Cash Credit, Overdraft and Call Money Accounts/Deposits are not covered by the expression “Term Loans".
(iii) Deferred Payament Liabilities,	Deferred Payment Liabilities would include any Liability for which payment is to be made on deferred credit terms, e.g., Deferred Sales Tax Liability, Deferred Payment for Acquisition of fixed Assets, etc.
(iv) Deposits,	Deposits classified under Borrowings would include Deposits accepted from Public and Inter – Corporate Deposits which are in the nature of Borrowings.
(v) Loans & Advances from Related Parties,	Loans and advances from related parties are required to be disclosed. Advances under this head should include those advances which are in the nature of loans.
(vi) Long-Term Maturities of Finance Lease Obligations,
(vii) Other Loans & Advances (specify nature)
Notes:
1. Security-wise Classification: Borrowings shall further be sub-classified as Secured and Unsecured. Nature of security shall be specified separately in each case.	Nature of security shall be specified separately in each case. A blanket disclosure of different securities covering all loans classified under the same head such as “All Term Loans from Banks” will not suffice.
	However, where one security is given for multiple Loans, the same may be clubbed together for disclosure purposes with adequate details of cross referencing.
	Disclosure about the nature of security should also cover the type of asset given as security e.g., Inventories, Plant and Machinery, land and Building, etc.
	When promoters, other shareholders or any third party have given any personal security for any borrowing, e.g. Shares or Other Assets held by them, disclosure should be made thereof, through such security does not result in the classification of such borrowing as secured.
2. Guarantees: Where Loans have been guaranteed by Directors or Others, the aggregate amount of such Loans under each head shall be disclosed.	The word “Others” used in the phrase “Directors or Others” would mean any Person or Entity other than a Director, e.g. Related Parties, or any person associated with the Company in some manner.
3. Maturity Date-wise Presentation: Bonds / Debentures (along with Rate of Interest & 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.	Current Maturities of all Long-Term Borrowings will be disclosed under “Other Current Liabilities” and not under Long-Term Borrowings and Short-Term Borrowings. So, it is possible that the same Bonds/Debentures/ Term Loans may be bifurcated under both “Long-Term Borrowings” as well as under “Other Current Liabilities”.
4. Redemption by Installment: 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.	----------------------
5. Powers to Re-issue: Particulars of any redeemed Bonds/ Debentures which the Company has power to reissue shall be disclosed.	----------------------
6. Terms of Repayment: Terms of repayment of Repayment of Term Loans and Other Loans shall be stated.	Other loans should be interpreted to mean all categories listed under the heading ‘Long-Term Borrowings’ as per Sch. VI (R). Disclosure of terms of repayment should be made preferably for each Loan unless the repayment terms of individual loans within a category are similar, in which case, they may be aggregated.
7. Default: Period and amount of continuing default as on the Balance Sheet date in repayment of Loans and Interest, shall be specified separately in each case	The term “Continuing Default” is used w.r.t. Long Term Borrowings, whereas the term “Default” is used w.r.t. Short Term Borrowings
	Under CARO, the auditor shall report on the default made and the period of default.
	The period and amount of continuing default as on the Balance Sheet date in repayment or Term Loans and Interest shall be specified separately in each case.
	Disclosures relating to default should be made for all items listed under the category of borrowings such as Bonds/ Debentures, Deposits, Deferred Payment Liabilities, Finance Lease Obligations, etc. and not only to items classified as “Loans” such as Term Loans, Loans & Advances etc.
	Defaults other than in respect of repayment of Loan and Interest, e.g., non-compliance with Debt Covenants, etc. need not be disclosed.
	Any default that had occurred during the year and was subsequently made good before the end of the year need not be disclosed.

(3) (b) Diffrent Tax Liabilities (Also Refer AS-22)

Sch. III Disclosure Requirement	Points
To be shown as a separate line item on the face of Balance Sheet.	----

(3) (c) Other Long-term Liabilities

Sch. III Disclosure Requirement	Points
(a) Trade Payables	Sundry Creditors for Goods or Services, and Acceptances should be disclosed as part of Trade Payables. Disclosure Requirements under MSMED Act will also be required to be made in the annual Financial Statements.
(b) Others	Amounts due under contractual obligations, e.g., payables in respect of statutory obligations like contribution to Provident Fund, Purchase of Fixed Assets, Contractually Reimbursable Expenses, Interest Accrued on Trade Payables, etc. should be classified as "Others" and each such item should be disclosed nature-wise.

(3) (d) Long Term Provision

Sch. III Disclosure Requirement	Points
It shall be classified as –
(a) Provision for Employee Benefits	This should be classified into short-term and long-term portions, and the latter amount should be included here.
(b) Others (Specifying nature)	This would include items like Provisions for Warranties, etc.

(4) Current liabilities

(4) (a) Short Term Borrowings

Sch. III Disclosure Requirement	Points
1. Short-Term Borrowings shall be classified as – Loans Repayable on demand – (i) from Banks, & (ii) Other Parties, Loans and Advances from Related Parties, Deposits, Others Loans and Advances (specify nature)	Short-Term Borrowings will include all Loans within a period of 12 months from the date of the loan, Loans payable on demand, etc. In case of Short-Term Borrowings, all defaults (not continuing defaults as in the case of Long Term Borrowings) existing as at the date of the Balance Sheet should be disclosed (item-wise). A 3-Year Loan taken for a business with a 4-year Operating Cycle will be categorized only as Short Term Borrowings, and not as Long Term Borrowings.
2. Security-wise Classification: Borrowings shall further be sub-classified as Secured and Unsecured. Nature of security shall be specified separately in each case.
3. Guarantees: Where Loans have been guaranteed by Directors or others, the aggregate amount of such Loans under each head shall be disclosed.
4. Default: Period & amount of default as on Balance Sheet Date in repayment of Loans and Interest shall be separately disclosed in each case.
5. Current maturities of long term borrowings shall be disclosed separately.

(4) (b) Trade Payables

Sch. III Disclosure Requirement

Points

It shall be classified as –

(A) Total outstanding dues of micro enterprises and small enterprises; and

(B) Total outstanding dues of creditors other than micro enterprises and small enterprises.”

Refer to meaning of ‘Trade Payable’ given earlier. Liability for Capital Goods Purchases: Amount due towards purchase is disclosed under “Other Current Liabilities” with a suitable description.

Liability under Contractual Obligations: Liability towards Employees, Leases or other Contractual Liabilities should not be included under Trade Payables. Only “Commercial Dues” can be included under Trade Payables.

Note: The following details relating to Micro, Small and Medium Enterprises shall be disclosed in the notes:

The principal amount and the interest due thereon (to be shown separately) remaining unpaid to any supplier at the end of each accounting year;
The amount of interest paid by the buyer in terms of section 16 of the Micro, Small and Medium Enterprises Development Act, 2006, along with the amount of the payment made to the supplier beyond the appointed day during each accounting year;
The amount of interest due and payable for the period of delay in making payment (which have been paid but beyond the appointed day during the year) but without adding the interest specified under the Micro, Small and Medium Enterprises Development Act, 2006;
The amount of interest accrued and remaining unpaid at the end of each accounting year; and
The amount of further interest remaining due and payable even in the succeeding years, until such date when the interest dues above are actually paid to the small enterprise, for the purpose of disallowance of a deductible expenditure under section 23 of the Micro, Small and Medium Enterprises Development Act,

Explanation – the terms ‘appointed day’, ‘buyer’, ’enterprise’, ‘micro enterprise’, ‘small enterprise’ and ‘supplier’ shall have the same meaning assigned to those under (b),(d),(e),(h),(m) and (n) respectively of section 2 of the Micro, Small and Medium Enterprises Development Act, 2006.

Note: The entity shall prepare an ageing schedule for Trade Payable due for payment as per the format given under Schedule III.

(4) (C) Other Current Liabilities

Sch. III Disclosure Requirement

Points

It shall be classified as –

(a) Current Maturities of Finance Lease Obligations,

(b) Interest Accrued but not due on Borrowings,

(d) Income Received in Advance,

(e) Unpaid Dividends,

(f) Application Money received for allotment of Securities and due for Refund and Interest Accrued thereon (Refer Note below)

(g) Unpaid Matured Deposits and Interest Accrued thereon,

(h) Unpaid Matured Debentures and Interest Accrued thereon,

(i) Other Payables (specify nature).

• The portion of Lease Obligations, which is due for payments within 12 months of the reporting date is required to be classified under “Other Current Liabilities”, while the balance amount should be classified under Long-Term Borrowings.

• Trade Deposits and Security Deposits which are not in the nature of Borrowings should be classified separately under Other Non-Current / Current Liabilities.

Note:

1. Share Application Money includes Advances towards allotment of Share Capital.

2. Terms and Conditions including the Number of Shares proposed to be issued, the Amount of Premium, if any, and the period before which shares shall be allotted shall be disclosed.

3. It shall also be disclosed whether the Company has sufficient Authorized Capital to cover the Share Capital Amount resulting from Allotment of Shares out of such Share Application Money.

4. Further, the period for which the Share Application Money has been pending beyond the period for Allotment as mentioned in the document inviting application for shares along with the reason for such Share Application Money being pending shall be disclosed.

5. Share Application Money not exceeding the Issued Capital and to the extent not refundable shall be shown under the head ‘Equity’ and Share Application Money to the extent refundable, i.e., the amount in excess of subscription or in case the requirements of minimum subscription are not met, shall be separately shown under ‘Other Current Liabilities’.

• Other Payables under this head may be in the nature of statutory dues such as Withholding Taxes, GST, etc.

• Current Year Classification as Current Liability and Previous Year Non-Current Liability:

Current/Non-Current Classification of Assets/ Liabilities is determined on a particular date, i.e., Balance Sheet date. So, if there is any change in the position at the end of the current year resulting in a different classification of Assets /liabilities in the current year, it will not impact the classification made in the previous year.

(4) (d) Short Term Provision

Schedule III Disclosure Requirement

Points

It shall be classified as –

(a) Provision for Employee Benefits

This should be classified into short-term and long-term portions, and the former amount should be included here.

(b) Others (Specifying nature)

This includes Provision for Taxation, Provision for Warranties, etc.

B. DISCLOSURE REQUIREMENTS FOR “ASSETS” ITEMS

i. NON-CURRENT ASSETS

1. (a) (i) Property, Plant and Equipment (Also Refer AS 10)

Schedule III Disclosure Requirement	Points
1. Classification shall be given as –(a) Land, (b) Buildings, (c) Plant and Equipment, (d) Furniture & Fixtures, (e) Vehicles, (f) Office Equipment, (g) Others (Specify Nature).	AS-19 excludes Land Leases from its scope. Leasehold land should be presented as a separate assets class under PPE. Also, Freehold Land should be presented as a separate asset class.
2. Assets under lease shall be separately specified under each class of asset.	• The term “under lease” should mean – (a) assets given on operating lease in the case of lessor, and (b) assets held under finance lease in the case of lessee. • Leasehold improvements should continue to be shown as a separate asset class.
3. Revaluation: Where sums have been written off on a Reduction of Capital or Revaluation of Assets of where sums have been added on Revaluation of Assets, every Balance Sheet subsequent to date of such write- off, of addition shall show the Reduced or Increased figures as applicable and shall be way of a Note also show the amount of the Reduction or Increase as applicable together with the date thereof for the first 5 years subsequent to the dare of such Reduction or Increase.	• AS-10 requires disclosure of details such as Gross Book Value of Revalued Assets, Method adopted to compute revalued amounts, Nature of indices used, Year of appraisal, Involvement of External Valuer, etc. as long as the concerned assets are held by the Enterprise. [but only 5 years period is specified in Sch III] • AS-10 requirements will prevail. [Note:AS-26 does not permit revaluation of Intangible Assets.]
4. Reconciliation: 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, amount of change due to revaluation (if change is 10% or more in the aggregate of the net carrying value of each class of Property, Plant and Equipment) and other adjustments and the related depreciation and impairment losses/reversals shall be disclosed separately.	• Acquisitions through ‘Business Combinations’ should be disclosed separately for each class of assets. • Asset Disposals through Demergers, etc. any also be disclosed separately for each class of assets. (iv) Other Adjustments: This includes – • Capitalization of FOREX Differences where such option has been exercised by the Company as per AS-11. • Adjustments on a/c of Exchange Fluctuations for Fixed Assets in case of Non-Integral Operations (AS- 11). • Borrowing Costs capitalized as per AS-16.

• Acquisitions through ‘Business Combinations’ should be disclosed separately for each class of assets.

• Asset Disposals through Demergers, etc. any also be disclosed separately for each class of assets.

(iv) Other Adjustments: This includes –

• Capitalization of FOREX Differences where such option has been exercised by the Company as per AS-11.

• Adjustments on a/c of Exchange Fluctuations for Fixed Assets in case of Non-Integral Operations (AS- 11).

• Borrowing Costs capitalized as per AS-16.

1. (a) (ii) Intangible Assets (Also Refer AS-26)

Schedule III Disclosure Requirement

Points

Classification shall be given as –

(a) Goodwill, (b) Brands / Trademarks, (c) Computer Software, (d) Mastheads and Publishing Titles, (e) Mining Rights, (f) Copyrights, and Patents and Other Intellectual Property Rights, Services and Operating Rights, (g) Recipes, Formulae, Models, Designs and Prototypes, (h) Licenses and Franchise, (i) Others (specify nature).

• Intangible Assets under development should also be disclosed separately, if AS-26 criteria are met.

1. (a) (iii) Capital Work in Progress

Schedule III Disclosure Requirement

Points

To be shown as a separate line item on the face of Balance Sheet

• Capital Advances should be included under Long-Term Loans and Advances and hence, cannot be included under Capital WIP.

• An ageing schedule must be given as per the prescribed format in Schedule III.

• For Intangible assets under development, whose completion is overdue or has exceeded its cost compared to its original plan, completion schedule shall also be given in the Notes.

1. (b) NON CURRENT INVESTMENTS (Also Refer AS – 13)

Schedule III Disclosure Requirement

Points

Non-Current Investments shall be classified as Trade Investments and Other Investments, and further classified as Investments in –

(a) Property,

(b) Equity Instruments,

(d) Government / Trust Securities,

(e) Debentures or Bonds,

(f) Mutual Funds,

(g) Partnership Firms, and

(h) Other Non-Current Investments (specify nature).

• If a Debenture is to be redeemed partly within 12 months and balance after 12 months, the amount to be redeemed within 12 months should be disclosed as current, and balance as Non-Current.

• “Trade Investment” is normally understood as an Investment made by a company in shares or debentures of another company, to promote the trade or business of the first company.

Notes:

1. Under each classification, details shall be given of names of the bodies corporate indicating separately whether such bodies are (i) subsidiaries, (ii) associates,(iii) joint ventures, or (iv) controlled special purpose 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).

(a) Controlled SPEs:

• Sch. III requires separate disclosure of Investments in “Controlled Special Purpose Entities” in addition to Subsidiaries, Joint Venture, Associates, etc.

• Since the expression “Controlled SPEs” is not defined in the Act/Sch. III/AS, no disclosures would be additionally required to be made under this caption. If and when such terminology is explained/ introduced in the applicable AS, the disclosure requirement would become applicable.

(b) Other Points: “Nature and Extent” of Investment in each Body Corporate should be interpreted to mean the Number and Face Value of Share. Also, it is advisable to clearly disclose whether Investments are fully paid or partly paid. (item-wise)

2. In regard to investments in the capital of partnership firms, the names of the firms (with the names of all their partners, total capital and the shares of each partner) shall be given.

(a) Investment in LLP: A LLP is a Body Corporate, and not a Partnership Firm as envisaged under the Partnership Act, 1932. Hence, disclosures pertaining to Investments, in Firms will not include LLPs. Investments in LLPs will be disclosed separately under “Other Investments”.

(b) Change in Constitution: In case of change in constitution of the Firm during the year, the names of the Other Partners should be disclosed based on the position existing as on the date of Company’s B/s.

(c) Capital:

• The Total Capital of the Firm, to be disclosed, should be with reference to the Amount of Capital on the date of the Company’s Balance Sheet.

	• If the Partnership Firm has separate accounts for Partner’s Capital, Drawings or Current, Loans to or from Partners, etc. disclosure must be made with regard to the Total of Capital Accounts alone, since this is what constitutes the capital of the Partnership Firm. • Where, however, such Accounts have not been segregated, or where the Partnership Deed Provides that the Capital or each Partner is to be calculated by reference to the Net Amount at his credit after merging all the Accounts, the disclosure relating to the Partnership Capital must be made on the basis of the total effect of such accounts taken together. (d) Share of each Partner: Share of each Partner means share in the Profits of the Firm, rather than the share in the Capital.
	(e) Different Reporting Dates: If it is not practicable to draw up the Financial Statements of the Partnership up to such date and, are drawn up to different reporting dates, drawing analogy from AS-21 and AS-27, adjustments should be made for effects of significant transactions or other events that occur between those dates and the date of the Parent’s Financial Statements. Also, the difference between reporting dates should not be more than 6 months. In such cases, the difference in reporting dates should be disclosed.
3. Investments carried at other than at Cost should be separately stated specifying the basis for valuation thereof	Basis of Valuation: Disclosure for basis of valuation of Non- Current Investments may be either of – (a) Cost, or (b) Cost less Provision for other than temporary diminution, or (c) Lower of Cost and Fair Value.
4. The following shall also be disclosed- (a) Aggregate amount of Quoted Investments and Market Value thereof, (b) Aggregate Amount of Unquoted Investments, (c) Aggregate Provision for Diminution in value of Investments.	It is recommended to disclose the amount of provision netted-off for each Long-Term Investment. However, the aggregate amount of provision made in respect of all Non- Current Investments should also be separately disclosed to comply with the specific disclosure requirement in Sch III.

1. (c) DERERRED TAX ASSET (Also Refer AS – 22)

Schedule III Disclosure Requirement	Points
To be shown as a separate line item on the face of Balance Sheet.	-----

1. (d) LONG TERM LOANS AND ADVANCES

Schedule III Disclosure Requirement	Points
1. General Classification: Long Term Loans and Advances shall be classified as – (a) Capital Advances, (b) Loans and Advances to Related Parties (giving details thereof), (c) Other Loans and Advances (specify nature)	Capital Advances: • It should be specifically included under Long-Term Loans and Advances and hence, cannot be included under Capital Work-In-Progress. • Capital Advances are advances given for procurement of Fixed Assets which are Non-Current Assets. They are not realized back in cash, nut over a period, get converted into Fixed Assets. Assets. Hence, they are always long-term advances, irrespective of when the Fixed Assets are expected to be received. Other Loans and Advances should include all other items in the nature of advances recoverable in cash or kind, e.g., Prepaid Expenses, Advance Tax, Tax credit receivable, etc. which are not expected to be realized within the next 12 months or operating cycle whichever is longer, from the Balance Sheet date.
2. Security-wise Classification: The above shall be separately sub-classified as – (a) Secured, considered Good (b) Unsecured, considered Good (c) Doubtful.	---------
3. Bad/Doubtful Loans and Advances: Allowance for Bad and Doubtful Loans and Advances shall be disclosed under the relevant heads separately	---------
4. Directors, etc.: Loans and Advances 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 of a Director of a Member should be separately stated.	The term “Details” of Loans and Advances of Related Parties would mean disclosure requirements contained in AS-18.

1. (e) Other Non Current Assets

Schedule III Disclosure Requirement	Points
1. Other Non-Current Assets shall be classified as – (i) Long-term Trade Receivables (including Trade Receivables on Deferred Credit Terms) (ii) Security Deposits (iii) Others (specify nature)	• A Receivable shall be classified as ‘Trade Receivable’ if it is in respect of the amount due of account of goods sold or services rendered in the normal course of buisness. • Dues in respect of Insurance Claims, Sale of Fixed Assets, Contractually Reimbursable Expenses, Interest Accrued on Trade Receivables, etc. should be classified as “Others” and each such item should be disclosed nature-wise.
2. Security-wise Classification: Long-Term Receivables shall be separately sub- classified as – (a) Secured, considered Good (b) Unsecured, Considered Good (c) Doubtful.
3. Bad / Doubtful Loans and Advances: Allowance for Bad and Doubtful Loans and Advances shall be disclosed under the relevant heads separately.
4. Directors, etc.: 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.
5. Ageing Schedule: For trade receivables outstanding, ageing schedule shall be prepared as per the format prescribed in Schedule III.

2. Current Assets

2 (a) Current Investment (Also Refer As-13)

Schedule III Disclosure Requirement	Points
Current 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, (g) Other Investments (specify nature). Notes: 1. Under each classification, details shall be given of Names of Bodies Corporate [indicating separately whether such Bodies are – (i) Subsidiaries, (ii) Associates, (iii) Joint Ventures, or (iv) Controlled Special Purpose 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 party- paid). In regard to Investments in the Capital of Partnership Firms, the names of the Firms (with the names of all their Partners, Total Capital and the Shares of each Partner) shall be given.	Principles given for Non-current Investments will apply here, to the extent relevant. However, Trade vs Non- Trade Classification, is not required for Current Investments.
1. Under each classification, details shall be given of Names of Bodies Corporate [indicating separately whether such Bodies are – (i) Subsidiaries, (ii) Associates, (iii) Joint Ventures, or (iv) Controlled Special Purpose 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 party- paid). In regard to Investments in the Capital of Partnership Firms, the names of the Firms (with the names of all their Partners, Total Capital and the Shares of each Partner) shall be given
2. The following shall also be disclosed: (a) Basis of Valuation of individual Investments, (b) Aggregate amount of quoted investments and market value thereof, (c) Aggregate amount of unquoted investments, (d) Aggregate provision made for diminution in value of Investments.

2. (b) INVENTORIES (Also Refer AS-2)

Schedule III Disclosure Requirement	Points
Inventories shall be classified as –	Goods in Transit should be included under relevant heads with suitable disclosure. The heading “Finished Goods” should comprise of all Finished Goods other than those acquired for trading purposes. Those acquired for trading purposes are to be shown under “Stock in Trade".
(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,
(g) Others (specify nature)
Note:
(i) Goods-in-Transit shall be disclosed under the relevant sub-head of Inventories.
(ii) Mode of Valuation shall be stated.

2. (c) Trade Receivables

Schedule III Disclosure Requirement	Points
1. Aggregate amount of Trade Receivables outstanding for a period exceeding 6 months from the date they are due for payment should be separately stated.	Sch. III requires separate disclosure of “Trade Receivables Outstanding for a period exceeding 6 months from the date they become due for payment”, only for the current portion of Trade Receivables.
2. Security-wise Details: Trade Receivables shall be separately sub-classified as – Secured, considered Good Unsecured, considered Good Doubtful.	Where no due date is specifically agreed upon, normal credit period allows by the Company should be taken into consideration for computing the due date, which may vary depending upon the Nature of Goods or Services sold and the Type of Customers, etc.
3. Bad/Doubtful Loans and Advances: Allowance for Bad and Doubtful Loans and Advances shall be disclosed under the relevant heads separately.	Amounts due under contractual obligations, e.g., dues in respect of insurance claims, sale of fixed assets, contractually reimbursable expenses, interest accrued on trade receivables, etc., cannot be included within trade receivables, such receivables should be classified as “Other Current Assets” and each such item should be disclosed nature –wise.
4. Debts due by Directors: 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.	Lean Period Activities: Receivables arising out of sale of materials / rendering of services during a company’s lean period, should be included under “Trade Receivables”, if such activity is in the normal course of business. If they are not part of “normal course of business”, they are to be classified under “Other Assets".

2. (d) CASH AND CASH EQUIVALENTS (Also Refer AS – 3)

Schedule III Disclosure Requirement	Points
1. General Classification: Short-Term Loans and Advances shall be classified as – (a) Loans and Advances to Related Parties (giving details thereof), (b) Others (specify nature).	Principles given for Long Term Loans and Advances will apply here, to the extent relevant.
2. Security-wise Classification: The above shall also be sub-classified as – (a) Secured, considered Good, (b) Unsecured, considered Good, (c) Doubtful.
3. Bad/Doubtful Loans and Advances: Allowance for Bad and Doubtful Loans and Advances shall be disclosed under the relevant heads separately.
4. Directors, etc.: Loans & Advances 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.

2. (f) Other Current Assets

Schedule III Disclosure Requirement	Points
This is an all-inclusive heading, which incorporates Current Assets that do not fit into any other Asset Categories. Nature of each item should be specified.	This is an all-inclusive heading, which incorporates Current Assets that do not fit into any other asset categories, e.g., Unbilled Revenue, Unamortized Premium on Forward Contracts, etc. In case any amount classified under this category is doubtful, it is advisable that such doubtful amount as well as any provision made there against should be separately disclosed.

Additional Disclosures in the Notes to Accounts:

I. Contingent liabilities and commitments (to the extent not provided for)

1. Contingent liabilities shall be classified as:
  1. Claims against the company not acknowledged as debt;
  2. Guarantees;
  3. Other money for which the company is contingently
2. Commitments shall be classified as:
  1. Estimated amount of contracts remaining to be executed on capital account and not provided for;
  2. Uncalled liability on shares and other investments partly paid;
  3. Other commitments (specify nature).

The amount of dividends proposed to be distributed to equity and preference shareholders for the period and the related amount per share shall be disclosed separately and not to be shown in the Balance
Where in respect of an issue of securities made for a specific purpose, the whole or part of the amount has not been used for the specific purpose at the balance sheet date, there shall be indicated by way of note how such unutilised amounts have been used or invested.
Where the company has not used the borrowings from banks and financial institutions for the specific purpose for which it was taken at the balance sheet date, the company shall disclose the details of where they have been used.
If, in the opinion of the Board, any of the assets other than fixed assets and non-current investments do not have a value on realisation in the ordinary course of business at least equal to the amount at which they are stated, the fact that the Board is of that opinion, shall be stated.

II. Additional Regulatory Information

The company shall provide the details of all the immovable property whose title deeds are not held in the name of the company in the prescribed format.
Where the Company has revalued its Property, Plant and Equipment, the company shall disclose as to whether the revaluation is based on the valuation by a registered valuer as defined under rule 2 of the Companies (Registered Valuers and Valuation) Rules, 2017.
Disclosures shall be made where Loans or Advances in the nature of loans are granted to promoters, Directors, KMPs and the related parties (as defined under Companies Act, 2013,) either severally or jointly with any other person that are (a) repayable on demand or (b) without specifying any terms or period of repayment.

III. Details of Benami Property held

Where any proceedings have been initiated or pending against the company for holding any benami property under the Benami Transactions (Prohibition) Act, 1988 (45 of 1988) and the rules made thereunder, the company shall disclose details such as year of acquisition, amount, details of beneficiaries, reference to the item in the Balance Sheet etc.

IV. Borrowing based on security of current assets

The company shall disclose whether the quarterly returns or statements of current assets filed by the Company with banks or financial institutions are in agreement with the books of accounts. if not, summary of reconciliation and reasons of material discrepancies, if any to be adequately disclosed.

V. Willful Defaulter

Where a company is a declared willful defaulter by any bank or financial institution or other lender, the company shall disclose the details of the date of such declaration and details of default.

VI. Relationship with Struck Off Companies

Where the company has any transactions with companies struck off under section 248 of the Companies Act, 2013 or section 560 of Companies Act, 1956, the Company shall disclose details such as name of the struck off company, nature of transactions with the company, balance outstanding and relationship with the struck off company, if any.

VII. Registration of charges or satisfaction with Registrar of Companies

Where any charges or satisfaction yet to be registered with Registrar of Companies beyond the statutory period, details and reasons thereof shall be disclosed.

VIII. Compliance with number of layers of companies

Where the company has not complied with the number of layers prescribed under clause (87) of section 2 of the Act read with Companies (Restriction on number of Layers) Rules, 2017, the name and CIN of the companies beyond the specified layers and the relationship/extent of holding of the company in such downstream companies shall be disclosed.

IX. Certain ratios are to be disclosed

The company shall disclose ratios such as (a) Current Ratio, (b) Debt-Equity Ratio, (c) Debt Service Coverage Ratio, (d) Return on Equity Ratio, (e) Inventory turnover ratio, (f) Trade Receivables turnover ratio, (g) Trade payables turnover ratio, (h) Net capital turnover ratio, (i) Net profit ratio, (j) Return on Capital employed, (k) Return on investment. explanation shall be provided for any change in the ratio by more than 25% as compared to the preceding year.

Among the other compliance requirements are:

X. Compliance with approved Scheme(s) of Arrangements; and

XI. Utilisation of Borrowed funds and share

[Please refer to Schedule III, Division I for further details]

Accounting Standard 1, Disclosure of Accounting Policies

In addition to the disclosure requirements specified in Division I of Schedule III, companies who are required to comply with Companies (Accounting Standards) Rules, 2006 shall also follow the requirements of AS 1, Disclosure of Accounting Policies while preparing and presenting the financial statements. Following are the important provisions of this Standard.

All significant accounting policies adopted in the preparation and presentation of financial statements should be disclosed.
The disclosure of the significant accounting policies as such should form part of the financial statements and the significant accounting policies should normally be disclosed in one place.
Any change in the accounting policies which has a material effect in the current period or which is reasonably expected to have a material effect in later periods should be In the case of a change in accounting policies which has a material effect in the current period, the amount by which any item in the financial statements is affected by such change should also be disclosed to the extent ascertainable. Where such amount is not ascertainable, wholly or in part, the fact should be indicated.
If the fundamental accounting assumptions, viz. Going Concern, Consistency and Accrual are followed in financial statements, specific disclosure is not required. If a fundamental accounting assumption is not followed, the fact should be disclosed.
There is no single list of accounting policies which are applicable to all circumstances. The differing circumstances in which enterprises operate in a situation of diverse and complex economic activity make alternative accounting principles and methods of applying those principles acceptable.
Examples of the areas in which different accounting policies may be adopted by different enterprises are: method of depreciation, treatment of expenditure during construction, conversion or translation of foreign currency items, valuation of inventories etc.
The primary consideration in the selection of accounting policies by an enterprise is that the financial statements prepared and presented on the basis of such accounting policies should represent a true and fair view of the state of affairs of the enterprise as at the balance sheet date and of the profit or loss for the period ended on that date. For this purpose, the major considerations governing the selection and application of accounting policies are – prudence, substance over form and
Disclosure of accounting policies or of changes therein cannot remedy a wrong or inappropriate treatment of the item in the accounts.

Preparation of the Statement of Profit and Loss and Balance Sheet – Some Typical Adjustments

Classification of Items of Assets and Liabilities as Current or Non-current Current assets

An entity shall classify an asset as current when:

it expects to realise the asset, or intends to sell or consume it, in its normal operating cycle;
it holds the asset primarily for the purpose of trading;
it expects to realise the asset within twelve months after the reporting period; or
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.

An entity shall classify all other assets as non-current.

Note: The term ‘non-current’ shall include tangible, intangible and financial assets of long-term nature.

Note: The operating cycle of an entity is the time between the acquisition of assets for processing and their realisation in cash or cash equivalents.

An entity shall classify a liability as current when:

it expects to settle the liability in its normal operating cycle;
it holds the liability primarily for the purpose of trading;
the liability is due to be settled within twelve months after the reporting period; or
it does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

Note: An entity shall classify all other liabilities as non-current. Consider the following illustration.

Illustration 2

While preparing the Balance Sheet as on 31.03.2021, the Accountant of ABC Ltd. is confused regarding classification of following Trade Payables into current and non-current.

Sl. No.	Amount due (₹)	Due from	To be settled on
1	3,10,000	01.04.2020	18.05.2021
2	1,80,000	01.06.2020	15.09.2022
3	40,000	01.08.2020	15.07.2022
4	15,000	01.01.2021	30.04.2022
5	2,30,000	06.03.2021	05.07.2022
6	1,08,000	15.03.2021	31.12.2021

The normal operating cycle of the company is 15 months. Advice the Accountant on classification with reason.

Solution:

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b. Closing balance of inventories:

The changes in the inventories of finished goods, WIP and Stock-in-trade is shown under Expenses in the Statement of Profit and Loss and the closing balance of inventories appear under Current Assets in the Balance Sheet.

Consider the following illustration

Illustration 3

X Ltd., a manufacturer-cum trader, provides you the following details for the financial year ended on 31.03.2021.

Item of Inventory	Balance on 01.04.2020 (₹)	Balance on 31.03.2021 (₹)	Purchases during the year (₹)
Raw Materials	2,00,000	2,50,000	5,00,000
WIP	1,20,400	1,50,200	--
Finished Goods	5,10,000	3,50,000	--
Stock-in-trade	59,000	1,25,000	--

You are required to draft an extract of the Statement of Profit and Loss and also show the relevant Notes to Accounts.

Solution:

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c. Provision for doubtful debt

The provision for doubtful debt is usually estimated as a percentage on Sundry Debtors (after necessary adjustments).

The amount of provision for doubtful debt as at the end of the accounting period is shown as an expense under Other Expenses in the Statement of Profit and Loss. The amount is also shown as a deduction from Sundry Debtors within Trade Receivables under Current Assets.

Note: Balance of provision as at the beginning of the accounting year is shown as a deduction from closing provision under Other Expenses in the Statement of Profit and Loss.

d. Interest on Debenture or Bonds

Interest on debenture is shown as a part of Finance Cost in the Statement of Profit and Loss.

Interest accrued and due is shown as a part of Other Current Liabilities within the line-item Current Liabilities.

Interest accrued and not due is also shown as a part of Other Current Liabilities within the line-item Current Liabilities.

Note: There exists no difference in the treatment of interest on debenture ‘interest accrued and due’ and ‘interest accrued but not due’. However, they must be disclosed separately.

e. Depreciation

The amount of depreciation on tangible assets is included under the sub head Depreciation and Amortization under the head Expenses in the Statement of Profit and Loss.

It is also deducted from the carrying amount of respective assets while preparing the Notes to Property, Plant and Equipment.

f. Amortization

Amortization of intangible assets is included under the sub head Depreciation and Amortization under the head Expenses in the Statement of Profit and Loss.

It is also deducted from the carrying amount of respective assets while preparing the Notes to Intangible Assets.

g. Calls-in Arrear

The balance of Calls-in-Arrear is shown as a deduction from Share Capital under Shareholders’ Fund in the Balance Sheet. For this purpose, in the Notes to Accounts section, the share capital is split between ‘Shares fully paid up’ and Shares not fully paid up’.

h. Calls-in-advance

The amount of Calls-in-Advance not yet adjusted till the Balance Sheet date is shown under Other Current Liabilities under the head Current Liabilities. It is never reflected under Share Capital.

i. Transfer to Reserves from Profits

It is an appropriation of profit. No appropriation item is reflected in the Statement of Profit and Loss. The final balance of Reserves and Surplus (after appropriation) is shown under Shareholders Fund in the Balance Sheet.

The individual appropriation items are to be shown in the Notes to Reserves and Surplus under Notes to Accounts section.

j. Interim Dividend Paid

The interim dividend already appearing in the Trial Balance is deducted from current year’s Surplus while preparing the Notes on reserve and Surplus.

No entry is required in the Statement of Profit and Loss.

k. Proposed Dividend

It is treated as a Contingent Liabilities and is shown as a deduction in Reserve and Surplus. It is disclosed in the Notes to Accounts section as a contingent liability.

l. Writing -off Share Issue Expenses, Underwriting Commission

The amount to be written-off is included in the Other Expenses under the head Expenses in the Statement of Profit and Loss.

It is also deducted from the corresponding item in Other Non-Current Assets under the head Non-Current Assets.

Note: The portion of expenses to be written-off within the next 12 months is to be shown as current assets under Other Current Assets.

m. Payment to Auditors

It is shown under the sub-head Other Expenses under the head Expenses in the Statement of Profit and Loss. Disclosure of various items should be made in the Notes to Accounts section.

Provision for Income Tax, Advance Tax and Assessed Tax of Prior Year

There may be following three situations:

i. When Assessed Tax Liability = Provision for Income Tax

Here, no further provision is required to be created. Now –

If Advance tax paid = Assessed Tax Liability, Provision for Income Tax and Advance Tax squared off.

If Advance tax paid < Assessed Tax Liability, Provision for Income Tax and Advance Tax squared off and their difference is treated as Income Tax Payable to appear under Other Current Liabilities.

If Advance tax paid > Assessed Tax Liability, Provision for Income Tax and Advance Tax squared off and their difference is treated as Income Tax Refund to appear under Other Current Assets.

ii. When Assessed Tax Liability > Provision for Income Tax

Here, further provision is required to be created by debiting Profit & Loss A/c. The additional Provision for income tax will appear under the line-item Tax Expense in the Statement of Profit and Loss as Prior Period Tax.

Further, adjustment of Advance tax and Provision for Income Tax shall be done in the same way as explained in situation (i).

iii. When Assessed Tax Liability < Provision for Income Tax

Here, excess provision is required to be written back by crediting it to Profit & Loss A/c. The excess Provision for income tax will appear under the line-item Tax Expense in the Statement of Profit and Loss as Prior Period Excess Provision.

Further, adjustment of Advance tax and Provision for Income Tax shall be done in the same way as explained in situation (i).

1. Provision for Income Tax and Advance Tax of Current Year

The Provision for Income Tax will appear in the line-item Tax Expenses as ‘Current Tax’ in the Statement of Profit and Loss. It will also appear under the sub-head Short-term Provisions under Current Labilities in the Balance Sheet.

The Advance Tax will appear under Short-term Loans and Advances under Current Assets in the Balance Sheet.

Illustration 4

The following are the extracts from the Trial Balance of Y Ltd. on March 31, 2021: (figures in ₹)

Provision for current tax (2019-20)	4,00,000	Tax deducted at source (2020-21)	20,000
Advance tax paid (2019-20)	3,60,000	Advance tax paid (2020-21)	2,00,000

The assessment for the year 2019-20 was finalized during the year 2020-21. The total tax liability for that year was fixed at ₹4,40,000 and the net amount payable for the year 2019-20 has not yet been paid. The net profit before tax for the year 2020-21 amounted to ₹8,00,000. Balance of Profit & Loss A/c at the end of 2019-20 was ₹4,00,000. Assume corporate income tax @ 35% (inclusive of surcharge and education cess) You are required to draft:

Extract of Statement of Profit and Loss for the year ended March 31,2019 along with the relevant Notes; and
Extract of Balance Sheet as on March 31, 2019 along with the relevant

Solution:

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Workings:

Tax assessment (20219-20)

Provision for tax (2019-20) = ₹4,00,000, and Assessed tax = ₹4,40,000

So, further provision required = ₹4,40,000-4,00,000 = ₹40,000

Income tax payable = Assessed tax – advance tax = 4,40,000 – 3,60,000 = ₹80,000

Comprehensive Problems on Preparation of Statement of Profit and Loss and Balance Sheet

Illustration 5

The following information has been extracted from the books of account of Hero Ltd. as at 31st March, 2021:

Particulars	Dr. (₹ '000)	Cr. (₹ '000)
Administration Expenses	480
Cash at Bank and on Hand	228
Cash Received on Sale of Fittings		10
Long Term Loan		70
Investments	200
Depreciation on Fixtures, Fittings, Tools and Equipment (1st April, 2020)	260
Distribution Costs	102
Factory Closure Costs	60
Fixtures, Fittings, Tools and Equipment at Cost	680
Profit & Loss Balance (at 1st April, 2020)		80
Purchase of Equipment	120
Purchases of Goods for Resale	1710
Sales (net of Excise Duty)		3,000
Share Capital (1,00,000 shares of ₹10 each fully paid)		1,000
Stock (at 1st April, 2020)	140
Trade Creditors		80
Trade Debtors	780
Total	4,500	4,500

Additional Information:

The stock at 31st March, 2021 (valued at the lower of cost or net realizable value) was estimated to be worth ₹ 2,00,000.
Fixtures, fittings, tools and equipment all related to Depreciation is charged at a rate of 20% per annum on cost. A full year’s depreciation is charged in the year of acquisition, but no depreciation is charged in the year of disposal.
During the year to 31st March, 2021, the Company purchased equipment of ₹1,20,000. It also sold some fittings (which had originally cost ₹ 60,000) for ₹10,000 and for which depreciation of ₹30,000 had been set
The average Income tax for the Company is 50%. Factory closure cost is to be presumed as an allowable expenditure for Income tax purpose.
The company proposes to pay a dividend of 20% per Equity Profits transferred to reserves ₹30,000.

Prepare Hero Ltd.’s Statement of Profit and Loss for the year to 31st March, 2021 and balance Sheet as at that date in accordance with the Companies Act, 2013 as per Division I of schedule III along with the Notes on Accounts containing only the significant accounting policies.

Solution:

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NOTES ON ACCOUNTS FOR THE YEAR ENDED 31ST MARCH, 2021

Significant Accounting Policies:

Basis for preparation of financial statements: The financial statements have been prepared under the historical cost convention, in accordance with the generally accepted accounting principles and the provisions of the companies Act, 2013 as adopted consistently by the company.
Depreciation: Depreciation on fixed assets is provided using the straight-line method, based on the period of five yea as Depreciation on additions is provided for the full year but no depreciation is provided on assets sold in the year of their disposal.
Investments: Investments are valued at lower of cost or net realizable
Inventories: Inventories are valued at the lower of historical cost or the net realizable

Working Notes:

Particulars	₹ in '000	₹ in '000
(1) PPE: Furniture and Fixture:
Gross block As on 01.04.2020	680
Add: Addition during the year	120
Total	800
Less: Deductions during the year	60
As on 31.03.2021		740
Depreciation:
As on 01.04.2020	260
Add: For the year (20% on 740)	148
Total	408
Less: Deduction during the year	30
As on 31.03.2021		378
Net Block as on 31.03.2021		362
(2) Provision for Taxation:
Profit for the year	540	540
Less: Loss on sale of asset (short-term capital loss)	20
Depreciation	148	168
		708
Less: Depreciation under Income-tax Act		168
		540
Provision for tax @50%		270

Note: It has been assumed that depreciation calculated under Income-tax Act amounts to ₹ 1,68,000.

Illustration 6

The following balances are extracted from the books of Supreme Ltd., a real estate company, on 31st March, 2021:

Particulars	Dr.	Cr.
Sales		13,800
Purchases of materials	6,090
Share capital fully paid		500
Land purchased in the year as stock	365
Leasehold premises	210
Creditors		2,315
Debtors	3,675
Directors' salaries	195
Wages	555
Work in progress on 01.04.2020	1,050
Sub-contractors' cost	4,470
Equipment, Fixtures and Fittings at cost on 01.04.2020	1,320
Stock on 01.04.2020	295
Profit and Loss Account, Credit Balance on 01.04.2020		640
Secured Loan		560
Bank Overdraft		525
Interest on Loan and Overdraft	110
Depreciation on Equipment on 01.04.2020		820
Administration Expenses	735
Office Salaries	90
Total	19,160	19,160

You also obtain the following information:

On 31st March, 2021, stock on hand including the land acquired during the year, is valued at ₹7,10,000. Work- in-progress at that date is valued at ₹7,00,000.
On 1st October, 2021 the company moved to new The premises are on a 12 years lease and the lease premium paid amounted to ₹2,10,000. The company used sub-contract labour of ₹2,00,000 and materials at cost of ₹1,90,000 in the refurbishment of the premises. These are to be considered as part of the cost of leasehold premises.
A review of the debtors reveals specific doubtful debts of ₹1,75,000 and the directors wish to provide for these together with a general provision based on 2% of the balance.
Depreciation on equipment, fixtures and fittings is provided at 15% on the written down
Supreme sued Shallow Ltd. for supplying defective materials which has been written off as valueless. The Directors are confident that Shallow Ltd. will agree for a settlement of ₹2,50,000.
The directors propose a dividend of 25%.
₹1,00,000 is to be provided as audit
The company will provide 10% of the pre-tax profit as bonus to employees in the accounts before charging the
Income tax to be provided at 50% of the You are required:
to prepare the company’s financial statements for the year ended 31st March, 2021 as near as possible to proper form of company final accounts; and
to prepare a set of Notes to accounts including significant accounting

Notes: Workings should form part of your answer. Previous year figures can be ignored.

Figures are to be rounded off to nearest thousands.

Solution:

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NOTES ON ACCOUNTS FOR THE YEAR ENDED 31ST MARCH, 2021

Significant Accounting Policies:

Basis for preparation of financial statements: The financial statements have been prepared under the historical cost convention, in accordance with the generally accepted accounting principles and the provisions of the companies Act, 2013 as adopted consistently by the company.
Fixed Assets: Fixed assets are shown at cost less depreciation. Cost comprises the purchase price and other attributable expenses.
Depreciation: Depreciation on fixed assets is provided using the written down Lease-hold premises/ improvements are being amortized over the lease period.
Inventories: Inventories are valued at the lower of historical cost or the net realizable

1. Other Matters:

The cost of leasehold premises includes the cost of refurbishment to the extent of ₹ 3,90,000 (Materials ₹ 1,90,000 + Labour ₹ 2,00,000).
Shallow has been sued for supplying defective materials. Settlement of ₹ 2,50,000 is hopeful however it has not been recognized in the accounts as it represents contingent gain.

1(a) Manufacturing Expenses
Opening Stock (FG)	295
Opening WIP	1,050	1,345
Purchase of materials (6,090 - 190)	5,900
Purchase of land as stock	365
Wages	555
Sub-contract Cost (4,470 - 200)	4,270
Less: Closing Stock - Finished Goods	710	(710)
Work in Progress	700	(1,410)
Total		11,025
1(b) Administration Expenses
Director's Salaries	195
Provision for Doubtful Debts [175 + 2% of (3,675 - 175)]	245
Audit Fees	100
Other Expenses	1,275
(c) Employee Benefits
Office Salaries	90
Bonus	120
Bonus Calculation		210
(2) Sales
Less: Manufacturing Expenses		11,025
Other Exp. (excluding bonus) (1,275 + 90)		1,365
Depreciation		100
Interest		110
Pre-tax Profit		12,600
Bonus (10%)		1,200
(3) Fixed Asset
(a) Gross Block		120

(b) Depreciation
(b) Furniture and Fixture		1,320
(c) Leasehold premises (210 + 200 + 190)		600
		1,920
Furniture and fixture (01.04.20)	820
For the year [15% on (1,320 - 820)]	75	895
Cost of Leasehold Premises written off		25
Total		920
(4) Provision for Taxation		1,080
Profit as per Profit and Loss Account
Add back: Provision for doubtful debts	245
Cost of Leasehold premises written off	25
Depreciation on equipment, fixtures, and fittings	75	345
		1,425
Less: Depreciation under Income-tax Act		125
Provision for tax (@ 50%)		1,300
(It has been assumed that depreciation calculated under income-tax act amounts to ₹1,25,000)		650

Illustration 7

PQR Ltd. was registered with a nominal capital of ₹20,00,000 divided into shares of ₹100 each. The following Trial Balance is extracted from the books on 31st March, 2021:

Particulars	₹	Particulars	₹
Buildings	11,60,000	Sales	20,80,000
Machinery	4,00,000	Outstanding Expenses	8,000
Closing Stock	3,60,000	Provision for Doubtful Debts (1-4-2020)	12,000
Loose Tools	92,000	Equity Share Capital	8,00,000
Purchases (Adjusted)	8,40,000	General Reserve	1,60,000
Salaries	2,40,000	Profit and Loss A/c (31.03.2020)	1,00,000
Directors' Fees	40,000	Creditors	3,68,000
Rent	1,04,000	Provision for Depreciation:
Depreciation	80,000	On Building	2,00,000
Bad Debts	24,000	On Machinery	2,20,000
Investment	4,80,000	14% Debentures	8,00,000
Interest Accrued on Investment	8,000	Interest on Debentures Accrued but not Due	56,000
Debenture Interest	1,12,000	Interest on Investments	48,000
Advance Tax	2,40,000	Unclaimed Dividend	20,000
Sundry Expenses	72,000
Debtors	5,00,000
Bank	1,20,000
	48,72,000		48,72,000

You are required to prepare Statement of Profit and Loss for the year ending 31st March, 2021 and Balance sheet as at that date after taking into consideration the following information:

Closing stock is more than opening stock by ₹3,20,000.
Provide to doubtful debts @ 4% on
Make a provision for income tax @30%.
Depreciation expense included depreciation of ₹32,000 on Building and that of ₹48,000 on
Transfer to General Reserve @ 10%.
The directors proposed a dividend @ 25%.
Bills Discounted but not yet matured ₹ 40,000.

Solution:

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3. An Introduction to Division II of Schedule III

Since its inception, 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 aim to keep the law at commensurate with various developments in the economic and regulatory environment and policy requirements. Moreover, the Government of India also 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 and reporting standards.

At this backdrop, the Ministry of Corporate Affairs vide its notification dated 6th April, 2016 notified amendments to Schedule III of the Companies Act, 2013, thereby inserting Division II to Schedule III for preparation of financial statements by those entities who are covered under Companies (Indian Accounting Standards) Rules, 2015.

Similar to Division I, this also comprises of two parts – Part I explaining the general instructions for preparation of Balance Sheet and Part II explaining the general instructions for preparation of the Statement of Profit and Loss.

The formats for the Statement of Profit and Loss and Balance Sheet as per Division II are described below.

Format of the Statement of Profit and Loss

Name of the Company.........................

Statement of Profit and Loss for the period ended................ (₹ in......... )

	Particulars	Note No.	Figures as at the end of current reporting period	Figures for the previous reporting period
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, Stock-in -Trade and work-in-progress

	Employee benefits expense
	Finance costs
	Depreciation and amortization expenses
	Other expenses
	Total expenses (IV)
V	Profit/(loss) before exceptional items and tax (I-IV)
VI	Exceptional Items
VII	Profit/ (loss) after exceptions items and 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 discontinued operations
XI	Tax expenses of discontinued operations
XII	Profit/(loss) from Discontinued 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 discontinued operation): (1) Basic (2) Diluted
XVIII	Earning per equity share (for discontinued & continuing operation) (1) Basic (2) Diluted

Format of the Balance Sheet

Name of the Company....................

Balance Sheet as at ...................... (₹ in......... )

Particulars	Note No.	Figures as at the end of current reporting period	Figures as at the end of the previous reporting period
ASSETS
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
(i) Deferred tax assets (net)
(j) Other non-current assets
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:
(A) total outstanding dues of micro enterprises and small enterprises; and
(B) total outstanding dues of creditors other than micro enterprises and small enterprises.
(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
(a) Financial Liabilities
(i) Borrowings
(ii) Trade Payables:
(A) total outstanding dues of micro enterprises and small enterprises; and
(B) total outstanding dues of creditors other than micro enterprises and small enterprises.
(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

Format of the Statement showing Changes in Equity

STATEMENT OF CHANGES IN EQUITY

Name of the Company..............

A. Equity Share Capital

Balance at the beginning of the current reporting Period	Changes in Equity Share Capital due to prior period errors	Restated balance at the beginning of the current reporting period	Chnages in equity share capital during the current year	Balance at the end of the current reporting period

B. Other Equity

Share application on money pending allotment

Equity component of compound financial instrument

Reserve and Surplus

Debt Instrument through other Compre- hensive Income

Equity Instrument through Other Comprehen- sive Income

Effective portion of Cash Flow Hedges

Revaluation Surplus

Exchange difference on translating the financial statement

Other items of Other Compr- ehensive Income

Money received against share capital

Total

Capital Reserve

Securities Premium

Other Reserve (Specify nature)

Retained Earning

Balance at the beginning of the reporting period

Changes in accounting policy or prior period errors

Restated balance at the beginning of the reporting period

Total comprehensive Income for the year

Dividends

Transfer to retained earnings

Balance at the end of the reporting period

Division II vs. Division I – Major Differences in Format

The major differences between Division II vs. Division I of Schedule III are as follows:

Applicability: Division II of Schedule III is applicable for a company whose financial statements are prepared in compliance with IND AS per Companies (Indian Accounting Standards) Rules, 2015. On the other hand, Division I of Schedule III is applicable for a company whose financial statements are prepared in compliance with Accounting Standards as per Companies (Accounting Standards) Rules, 2006.
Other Equity: In Division II, the head Equity Share Capital is followed by ‘Other Equity’ which comprises of (i) Share application money pending allotment, (ii) Equity component of compound financial instruments, (iii) Reserves and Surplus including Capital Reserve, Securities Premium, Other Reserves and Retained Earnings (i.e., Balance of Profit and Loss), (iv) Debt instruments through Other Comprehensive Income (OCI), (v) Equity instruments through OCI, (vi) Effective portion of Cash Flow Hedges, (vii) Revaluation Surplus and (viii) Exchange differences on translation, (ix) Other OCI items; and (x) Money received against share warrants. In Division I these items either had separate heads or were included in Reserves and Surplus.
Statement Showing Changes in Equity: In addition to the formats of the Statement of Profit and Loss and Balance Sheet, Division II additionally provides the format of the Statement of Changes in
Order of Assets and Liabilities in the Balance Sheet: In Division II, assets have been placed first followed by Equity and Liabilities. This was opposite in Division
Bifurcation of Balance Sheet Items: In addition to the Current and Non-Current Classification in Division I, Division II further bifurcates assets and liabilities in Financial and Non-Financial.
Retrospective Change in Accounting Policy: As per Division II, when there is retrospective change in accounting policy or restatement or reclassification of an item in financial statement, Balance Sheet at the beginning the earliest comparative period shall be presented. There is no such requirement in Division
Disclosure of Preference Shares including Premium Received: In Division II, non- redeemable preference shares are disclosed as part of equity and redeemable preference shares are disclose as Non- Current
Disclosure of Compound Financial Instruments: In Division II, compound financial instruments are split into equity and liability component per Ind AS requirements. The equity component is included in Other Equity while the debt component is reflected in Non-current
Disclosure of EPS: Division II requires EPS for discontinued operation and EPS discontinued & continuing operation to be reported separately.
Dividend on Redeemable Preference Shares: Division II requires the Dividend on Redeemable Preference Shares to be included in Finance
Extraordinary Items: Division II does not have any concept of extraordinary items to be included in the Statement of Profit and Loss.
Other Comprehensive Income: Division II requires Other Comprehensive Income to be a part of the Statement of Profit and Loss.

A Comprehensive Problem on Preparation of the Statement of Profit and Loss and Balance Sheet under Division II of Schedule III

Illustration 8

Please refer to Illustration 7. Prepare the Statement of Profit and Loss for the year ending 31st March, 2017 and Balance sheet as on that date as per Division II of Schedule III of the Companies Act, 2013.

Solution:

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Solved Case

XYZ Pharmaceuticals is a pharma start-up established in 2017. The company has registered significant growth over the last two years. To further expand its business, the company wants to mop up additional capital. Motivated by the recent success of a number of IPOs, the BOD has decided to go for a public issue rather than accessing institutional loan.

In order to apply for the IPO to SEBI, the company requires to submit, along with all other documents, its restated financial statements in prescribed format. The company, therefore, has hired you as an expert to assist its accountant in preparing the financial statements so that the statements conform, in all respect, to the relevant legislation and can be used to prepare restated financial statements for the purpose of filing for an IPO.

You have been given the following information for the financial year 2020-2021.

Particulars	Dr. (₹)	Cr. (₹)
Stock on 1st April, 2020	1,60,000	-
Purchases & Sales	5,00,000	8,00,000
Purchase returns	-	10,000
Carriage inward	2,100	-
Wages	50,000	-
Salaries	20,000	-
Discount Received	-	8,000
Furniture & Fittings	40,000	-
Rent	10,000	-
Sundry expenses	16,500	-
Balance of Profit & Loss (1.4.2020)	-	50,000
Share Capital (Subscribed & Paid-up; ₹10 each)	-	2,00,000
Interim Dividend	16,000	-
Debtors & Creditors	52,400	31,000
Plant & Machinery	2,46,000	-
General Reserve	-	20,000
Cash at bank	8,000	-
Bills Receivable & Bills Payable	6,000	8,000
Total	11,27,000	11,27,000

Additional information:

Stock on March 31, 2021 was valued at ₹ 98,000
Depreciate: Plant & Machinery @ 15%, Furniture & Fitting @ 10%.
On 31st March, 2021 outstanding rent amounted to ₹ 800 while outstanding salaries totalled ₹ 1,200.
Make a provision for doubtful debts @ 5%.
Provision for tax is to be made @ 30%.
The directors proposed a dividend @ 10% for the year ended March 31, 2021 excluding interim dividend and decided to transfer ₹ 10,000 to General Reserve.
1. You are required to prepare the Notes to Accounts to support preparation of the Statement of Profit and Loss for the year ended on 31.03.2021.
2. You are required to prepare the Statement of Profit and Loss for the year ended on 03.2021.
3. You are required to prepare the Notes to Accounts to support preparation of the Balance Sheet as on 03.2021.
4. You are required to prepare the Balance Sheet as on 03.2021.

Solution:

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EXERCISE

A. Theoretical Questions:

Multiple Choice Questions:

1. As per Schedule III Current Maturities of Long-term Borrowings should be shown under –

Current Assets in Balance Sheet
Non-current Liability in Balance Sheet
Current Liabilities in Balance Sheet
Other Expenses in Statement of Profit and Loss

Answer: c. Current Liabilities Balance Sheet

2. As per Schedule III of Companies Act 2013, while preparing the financial statements in case of a Finance Company, interest received from borrowers should be shown under

Revenue from operation
Other Income
Current assets
Non-current assets

Answer: a. Revenue from operation

3. Installment of principal amount of long-term loan payable within next 12 months is shown under Balance Sheet of a company under the heading

Non-current Assets
Non-current Liabilities
Current Assets
Current Liabilities

Answer: d. Current Liabilities

4. In case of purchase of assets under instalment payment system, instalments due after 12 months from the reporting date are shown as

Current liability
Current assets
Non-current liability
Non-current assets

Answer: c. Non-curriabilities

5. For the issuer, unpaid matured debentures and interest accrued thereon will be shown under the head

Non-current liabilities
Current liabilities
Non-current assets
Current assets

Answer: b. Current Liabilities

State True and False:

Interest accrued and due should be shown under the head Other Current Liabilities in a Balance Sheet of a Company. True
Interest on loan is included in ‘other operating expenses’ under the Statement of Profit and Loss. False
As per Schedule III of Companies Act 2013, interest received on convertible debentures is shown under Finance Cost in the Statement of Profit and Loss. False
Part I of Schedule III is related to preparation of Profit and Loss. False
Interest income in case of a Finance Company is treated as a part of revenue from Operation. True
Schedule III deals only with presentation and disclosure requirements. True
The aggregate amount of the balance of ‘Reserve and Surplus’, is to be shown after adjusting negative balance of surplus/ Loss, if any. True
2,00,000 8% Preference Shares of ₹100 each will come under: Equity and Liabilities –Shareholders’ funds - Share Capital (Schedule III). False

Fill in the Blanks:

Interest expenses are Finance costs.
Investment of ₹ 45,00,000 in 40,000 12% Debenture of ₹100 each of Amrit will come under: Assets - Non-current AssetsNon-current Investment.
Provision for taxation of ₹88,000 will come under: Equity and Liabilities under Current Liabilities Short-term Provision.
Short-Term Borrowings will include all Loans within a period of 12 months from the date of the loan.
Stock-in-Trade (in respect of goods acquired for Trading) are classified as Inventories.

B. Numerical Questions

Comprehensive Numerical Problems

1. Elixir Ltd. provides the following Trial Balance as on 31st March 2021:

Particulars	Dr. Balances (₹)	Cr. Balances (₹)
Equity Share Capital: 300000 shares of ₹10 each fully paid		30,00,000
12% Bank Loan		2,00,000
Furniture	2,25,000
Machinery	7,50,000
Building	12,50,000
Non-current Investment	2,00,000
Sales		48,00,000
Sales Return	4,00,000
Interest Received on Investment		20,000
Interest on Bank Loan	20,000
Purchase	33,20,000
Purchase Returns		4,20,000
Opening Stock	2,00,000
Discount	6,250
Carriage on Goods Sold	1,39,000
Rent and Taxes	60,000
Trade Receivables	12,00,000
Trade Payables		80,000
Advertisement	1,20,000
Bad Debt	10,000
Salaries	4,00,750
Audit fees	27,000
Contribution to P. F	60,000
Cash at Bank and in hand	1,32,000
Total	85,20,000	85,20,000

Additional Information:

Closing Stock as on 31st March 2021 was ₹ 2,12,500
Depreciation Rates: Furniture 10%; Machinery 20% and Building 10%
Outstanding salaries as on 31st march 2021 was ₹ 62250
Trade receivables include a sum of ₹25,000 due from B. Reddy and trade payables include ₹15,000 due to him.
Create a provision for doubtful debt @ 5% on trade receivables.
Provide for income tax ₹ 80,000

Prepare a Statement of Profit and Loss for the year ended on 31st March 2021 and a Balance Sheet as on that date as per the format provided in Division I of Schedule III.

Answer:

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2. ABC Ltd provides the following Trial Balance as on 31st March 2021.

Particulars	Dr. Balances (₹)	Cr. Balances (₹)
Equity Share Capital: 350000 shares of ₹10 each fully paid		35,00,000
10% Debentures		3,00,000
Motor Van	4,00,000
Machinery	20,00,000
Land and Building	12,00,000
12% Long Term Govt. Securities	2,00,000
Sales		60,00,000
Sales Return	3,00,000
Interest on Debenture	22,500
Purchase	36,00,000
Purchase Returns		4,00,000
Opening Stock	3,00,000
Discount	7,500
Carriage Outward	1,50,000
Rent and Rates	50,000
Income from Govt. Securities		24,000
Trade Receivables	10,00,000
Trade Payables		2,00,000
Advertisement	1,50,000
Bad Debt	20,000
Salaries	6,72,000
Misc. Expenditure	30,000
Contribution to P.F and Gratuity Funds	1,00,000
Cash at Bank and in hand	2,22,000
Total	1,04,24,000	1,04,24,000

Additional Information:

Closing Stock as on 31st March 2021 was ₹3,50,000
Depreciation Rates: Motor Vehicle 10%, Machinery 20% and Land & Building 5%
expenditure includes ₹20,000 as audit fees.
Interest on debenture is payable quarterly and the last quarter’s interest is yet to be paid.
Trade receivables include a sum of ₹25,000 due from X who has become insolvent and only 25 paisa in a rupee is expected to be recoverable from him.
Create a provision for doubtful debt @ 2% on trade receivables.
Provide for income tax ₹1,50,000

Prepare a Statement of Profit and Loss for the year ended on 31st March 2021 and a Balance Sheet as on that date as per the format provided in Division I of Schedule III.

Answer:

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3. PQR Ltd. was registered with a nominal capital of ₹20,00,000 divided into shares of ₹100 each. The following Trial Balance is extracted from the books on 31st March, 2021:

Particulars	₹	Particulars	₹
Buildings	11,60,000	Sales	20,80,000
Machinery	4,00,000	Outstanding Expenses	8,000
Closing Stock	3,60,000	Provision for Doubtful Debts (1-4-2020)	12,000
Loose Tools	92,000	Equity Share Capital	8,00,000
Purchases (Adjusted)	8,40,000	General Reserve	1,60,000
Salaries	2,40,000	Profit and Loss A/c (1-4-2020)	1,00,000
Directors' Fees	40,000	Creditors	3,68,000
Rent	1,04,000	Provision for depreciation:
Depreciation	80,000	On Building	2,00,000
Bad Debts	24,000	On Machinery	2,20,000
Investment	4,80,000	14% Debentures	8,00,000
Interest accrued on investment	8,000	Interest on Debentures accrued but not due	56,000
Debenture Interest	1,12,000	Interest on Investments	48,000
Advance Tax	2,40,000	Unclaimed dividend	20,000
Sundry expenses	72,000
Debtors	5,00,000
Bank	1,20,000
Total	48,72,000	Total	48,72,000

You are required to prepare statement of Profit and Loss for the year ending 31st March, 2017 and Balance sheet as at that date after taking into consideration the following information:

Closing stock is more than opening stock by ₹3,20,000.
Provide to doubtful debts @ 4% on
Make a provision for income tax @30%.
Depreciation expense included depreciation of ₹32,000 on Building and that of ₹48,000 on
The directors declared a dividend @ 25% and transfer to General Reserve @ 10%.
Bills Discounted but not yet matured ₹40,000.

Answer:

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4. The following is the trial balance of Alpha as on 31.03.2021:

Particulars	₹	Particulars	₹
Stock in trade on 01.04.17	1,50,000	Purchase returns	20,000
Purchases	4,90,000	Sales	6,80,000
Salaries	60,000	Discount received	6,000
Freight, carriage etc.	1,900	Balance of Profit and Loss (Cr.)	30,000
Furniture	34,000	Share capital (₹10)	2,00,000
Contribution to P.F	10,000	Trade payables	49,000
Rent and Rates	8,000	General reserve	31,000
Stationary	3,800
Repairs	4,000
Insurance	6,000
Misc. expenses	300
Interim dividend paid	18,000
Staff welfare expenses	5,000
Plant and machinery	58,000
Cash at bank	92,400
Patents	9,600
Trade receivables	65,000
	10,16,000		10,16,000

You are required to prepare statement of Profit and Loss for the year ending 31st March, 2021 and Balance Sheet as at that date after taking into consideration the following information:

Closing stock as at 03.2021 is ₹1,76,000.
Make a provision for income tax @ 40%.
Depreciate plant and machinery @ 15%, furniture @ 10% and patents @ 5%.
Outstanding rent ₹1,600 and outstanding salaries ₹1,800.
The directors recommended a dividend @ 15% after transfer to General Reserve ₹4,000.
Provide ₹1,020 for doubtful

The authorized capital of the company is ₹4,00,000 divided into 40,000 equity shares of ₹10 each of which 20000 shares have been issued and fully paid up.

Answer:

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Unsolved Cases

1. As per the present regulations in India, financial statements of companies must strictly adhere to the format prescribed in the relevant legislation for being acceptable to regulators as well as to various stakeholders.

PQR Ltd. registered as a company on 30.06.2018 and commenced operation with effect from 01.04.2019. The authorized capital of the company is 10,00,000 equity shares of ₹10 each. The paid-up capital of the company is, however, 6,00,000 equity shares of ₹10 each.

On 10.04.2021, the BOD has decided to undertake an expansion programme for which the capital expenditure is estimated at ₹15,00,000. The BOD has decided to apply for an institutional loan to arrange the funds. The lender however, requires the financial statements of the company to be submitted in prescribed format along with the loan application.

The directors, being novice in this respect, have asked your help as an expert in drafting the financial statements of the company for the financial year 2020-21.

In this respect, the following information is available.

Particulars	Dr. Balances (₹)	Cr. Balances (₹)
Equity Share Capital: 6,00,000 shares of ₹10 each fully paid		60,00,000
12% Bank Loan		4,00,000
Furniture	4,50,000
Machinery	15,00,000
Building	25,00,000
Non-current Investment	4,00,000
Sales		96,00,000
Sales Return	8,00,000
Interest Received on Investment		40,000
Interest on Bank Loan	40,000
Purchase	66,40,000
Purchase Returns		8,40,000
Opening Stock	4,00,000
Discount	12,500
Carriage on Goods Sold	2,78,000
Rent and Taxes	1,20,000
Trade Receivables	24,00,000
Trade Payables		1,60,000
Advertisement	2,40,000
Bad Debt	20,000
Salaries	8,01,500
Audit fees	54,000
Contribution to P.F.	1,20,000
Cash at Bank and in hand	2,64,000
Total	1,70,40,000	1,70,40,000

Additional Information:

Closing Stock as on 31st March 2021 was ₹4,25,000
Depreciation Rates: Furniture 10%, Machinery 20% and Building 10%
Outstanding salaries as on 31st march 2021 was ₹1,24,500
Trade receivables include a sum of ₹50,000 due from B. Reddy and trade payables include ₹ 30,000 due to him.
Create a provision for doubtful debt @ 5% on trade receivables.
Provide for income tax ₹1,60,000
1. You are required to prepare the Notes to Accounts (Employee Benefit Expenses, Finance Cost, Other Expenses and Depreciation) to support preparation of the Statement of Profit and Loss for the year ended on 31.03.2021.
2. You are required to prepare the Statement of Profit and Loss for the year ended on 03.2021.
3. You are required to prepare the Notes to Accounts (Fixed Assets and Trade Receivable) to support preparation of the Balance Sheet as on 31.03.2021.
4. You are required to prepare the Balance Sheet as on 31.03.2021.

Answer:

Preparation of the Statement of Profit and Loss and Balance Sheet (As per Schedule III of Companies Act, 2013)

1. Statement of Profit and Loss (as per Division of Schedule III )

2. Balance Sheet (as per Division I of Schedule III)

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3. An Introduction to Division II of Schedule III

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EXERCISE

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Preparation of the Statement of Profit and Loss and Balance Sheet (As per Schedule III of Companies Act, 2013)

1. Statement of Profit and Loss (as per Division of Schedule III )

2. Balance Sheet (as per Division I of Schedule III)

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3. An Introduction to Division II of Schedule III

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EXERCISE

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- Raghav Mandana

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- Arka Das

- Durgesh

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