Quick summary
Every company must prepare its financial statements – Balance Sheet, Statement of Profit and Loss, Cash Flow Statement, notes and statement of changes in equity – in the form given in Schedule III of the Companies Act, 2013 (Sec 129). This topic explains the vertical formats, the main heads and sub-heads, and how common items and adjustments are shown.
Key points
- Sec 129: financial statements must give a true and fair view, follow notified Accounting Standards (AS or Ind AS) and use the Schedule III form.
- Schedule III has Division I (companies following AS), Division II (Ind AS companies) and Division III (Ind AS NBFCs). B.Com syllabi mostly use Division I.
- The Balance Sheet is in vertical form with two parts: Equity and Liabilities and Assets; previous year figures are given beside the current year.
- Current vs non-current: an item due/realisable within 12 months (or the operating cycle) is current; otherwise non-current.
- Details are given in Notes to Accounts; the face of the statements shows only main heads with a "Note No." column.
- Reserves and surplus include capital reserve, securities premium, general reserve and the surplus (balance) in Statement of Profit and Loss; a debit balance of P&L is shown as a negative figure under this head.
- Proposed dividend is not provided as a liability; it is disclosed in the notes (AS-4 revised).
- Depreciation is charged as per Schedule II (useful-life based).
- Calls in arrears are deducted from called-up capital in the note on share capital.
- Rounding off depends on turnover (e.g. to the nearest hundred, thousand, lakh or crore).
Important terms
- Shareholders' funds (भागधारकांचा निधी) – share capital + reserves and surplus.
- Long-term borrowings – debentures, term loans repayable after 12 months.
- Trade payables – amounts owed to suppliers for goods and services.
- Property, Plant and Equipment (PPE) – tangible fixed assets such as land, buildings and machinery.
- Cash and cash equivalents – cash, bank balances and very short-term deposits.
Formats and formulas
Worked example – Balance Sheet of P Ltd as at 31 March (Division I):
| Particulars | Note | ₹ |
|---|---|---|
| I. Equity and Liabilities | ||
| 1. Shareholders' funds: (a) Share capital | 1 | 5,00,000 |
| (b) Reserves and surplus (General reserve 1,00,000 + Surplus 50,000) | 2 | 1,50,000 |
| 2. Non-current liabilities: Long-term borrowings (10% Debentures) | 3 | 2,00,000 |
| 3. Current liabilities: (a) Trade payables | 80,000 | |
| (b) Short-term provisions (provision for tax) | 20,000 | |
| Total | 9,50,000 | |
| II. Assets | ||
| 1. Non-current assets: (a) PPE (Land & buildings 4,00,000 + Plant 2,50,000) | 4 | 6,50,000 |
| (b) Non-current investments | 1,00,000 | |
| 2. Current assets: (a) Inventories | 90,000 | |
| (b) Trade receivables | 70,000 | |
| (c) Cash and cash equivalents | 40,000 | |
| Total | 9,50,000 |
Statement of Profit and Loss (short form):
| Particulars | ₹ |
|---|---|
| I. Revenue from operations | 10,00,000 |
| II. Other income | 20,000 |
| III. Total income (I + II) | 10,20,000 |
| IV. Expenses: cost of materials consumed 5,00,000; employee benefits 1,50,000; finance costs 20,000; depreciation 50,000; other expenses 1,00,000 | 8,20,000 |
| V. Profit before tax (III − IV) | 2,00,000 |
| VI. Tax expense (30%) | 60,000 |
| VII. Profit for the period | 1,40,000 |
Finance cost check: 10% × 2,00,000 debentures = ₹20,000.
5 important questions
Q1. What are the main heads of the Balance Sheet under Schedule III?
Equity and Liabilities: shareholders' funds, share application money pending allotment, non-current liabilities, current liabilities. Assets: non-current assets and current assets.
Q2. Where will you show (a) securities premium, (b) debentures due after 3 years, (c) bills payable, (d) goodwill?
(a) Reserves and surplus; (b) long-term borrowings; (c) trade payables under current liabilities; (d) intangible assets under non-current assets.
Q3. Explain the provisions of Sec 129 and Schedule III.
Outline: true and fair view, accounting standards, form in Schedule III, consolidated statements for companies with subsidiaries, penalty for non-compliance, the three divisions, general instructions (current/non-current, notes, rounding, previous year figures).
Q4. Prepare the Balance Sheet from a given trial balance with adjustments.
Steps: classify each ledger balance into heads; adjust depreciation, outstanding and prepaid items, provision for tax, transfer to reserve; prepare the Statement of Profit and Loss first; carry the surplus to reserves and surplus; prepare notes; total both sides (as in the example).
Q5. Explain the treatment of dividend, provision for tax and transfer to reserves in company final accounts.
Proposed dividend – disclosed in notes, not a liability until approved at the AGM. Provision for tax – debited to Statement of P&L, shown under short-term provisions. Transfer to reserves – reduces surplus and increases general reserve inside "Reserves and surplus".
Exam tip
Learn the order of heads by heart and always draw the "Note No." column. Prepare notes for share capital and reserves even if the question does not ask; examiners give marks for them.