FINANCIAL STATEMENTS OF A COMPANY

Financial statements refers to Income Statement and Position Statement that are prepared
at the end of accounting year to determine financial performance and financial position of a
business.

A set of financial statements includes:

(a) Position statement (Balance Sheet): It is a statement that is prepared at the end of the
year to determine financial position of business.
(b) Statement of Profit and Loss: It is a statement that is prepared to determine financial
performance of business i.e. whether firm has earned profits or losses during the year.
(c) Notes to Accounts: For some of the items which are to be shown in details are shown in
a statement called notes to account.
(d) Cash Flow Statement: It is a statement prepared at the end of the year which shows cash
flow position of the business.

BALANCE SHEET
Balance sheet is prepared as per Part I of Schedule III of Companies Act, 2013.
It is divided into two parts:
(a) Equity and Liabilities
(b) Assets
(A) EQUITY AND LIABILITIES
It is divided into four parts:
(a) Shareholder’ Fund
(b) Share Application money pending allotment
(c) Non-Current Liabilities
(d) Current Liabilities

(A.1) Equity (Shareholder’s fund)

It is the liability towards shareholders.
It includes: (i) Share Capital (ii) Reserve and Surplus
(iii) Money received against share warrants

(A.1.1) Share Capital: It means amount received by the company against issue of shares to
public for cash and for consideration other than cash.

Share capital includes both preference share capital and equity share capital.
Authorized Share Capital (Nominal Share Capital): It is the maximum amount that can
company can raise through issue of shares.
It is shown in the Notes to accounts on share capital for information
only.
Address: Equilibrium Classes, Near Pahari Mandir, Rani sati mandir lane, Ratu Road,
Ranchi (Jharkhand) - Ph. No. 9840885790. pg. 1
 Issued Share Capital: It is part of authorized share capital which the company has issued for
subscription.
It is shown in the Notes to accounts on share capital for information
only.
Subscribed Share Capital: It is that part of issued share capital which has been subscribed by
the public.
It is divided into two parts:
(a) Subscribed and fully paid
(b) Subscribed and not fully paid.
It is shown as Share capital in the balance sheet.

• Shares allotted for consideration other than cash are shown in subscribed share capital in notes to
account.
• Share forfeiture credit balance is shown by way of addition to subscribed share capital in notes to
account.

Reserve and Surplus

Exp: Capital Reserve; Securities Premium Reserve; Debenture redemption reserve; WCR ; IFR ; Tax
Reserve ; Subsidy reserve ; General Reserve ; Surplus i.e. Balance in statement of profit and loss.
Money Received against share warrants

These are financial instruments which gives the holder the right to convert them into equity shares at
a pre-determined price at a later date. Since these will be converted into equity shares, these are
classified as shareholder’s funds.

(A.2) Share Application money pending allotment

• In this we show amount of share application received against those applicants who will
certainly get shares in the future.
• Share application money received and which is to be refunded by the company will be shown
under Current Liabilities and under the sub head other current liabilities.
• If company doesn’t receive the minimum subscription then the amount received from applicants
appear under the head current liabilities and under the sub-head other current liabilities.

Address: Equilibrium Classes, Near Pahari Mandir, Rani sati mandir lane, Ratu Road,
Ranchi (Jharkhand) - Ph. No. 9840885790. pg. 2
 LIABILITY
Liabilities means external liabilities of the company i.e. liabilities towards outsiders.

Liabilities is sum of non-current liabilities and current liabilities.

(A.3) Non-Current Liabilities

• Liabilities which are due after a period of 12 months.
• As per Schedule III of Companies Act, 2013 ; Non-Current Liabilities is divided into four
categories:
(a) Long term borrowings: It refers to loan which is repayable by the company after 12
months from date of preparation of Balance Sheet.
Exp: Debentures; Bonds; Term Loans from bank; Public deposits etc.

(b) Net Deferred Tax Liability

(c) Other Long Term Liabilities: It refers to long term liabilities other than long term
borrowings.
Exp: Trade Payable if it is given that they will be repaid after a period of 12 months from date
of preparation of Balance Sheet ; Premium payable on redemption of debentures if
debentures are long term borrowings ; Premium payable on redemption of preference shares.

(d) Long Term Provisions

Long term provisions are the provisions against which liability will arise after 12 months from
date of preparation of Balance Sheet.

Exp: Provisions made for retirement benefits payable to employees who will retire after 12
months from preparation of Balance Sheet ; Provision for gratuity ; Provision for warranty
etc.

(A.4) Current Liabilities

As per Schedule III of Companies Act, 2013; Current Liabilities are classified into four
categories:

(a) Short Term Borrowings: It means borrowings of the company which is to be repaid within
a period of 12 months.
Exp: Loans repayable on demand ; Bank Overdraft ; Cash Credit from bank ; Loans
repayable within a period of 12 months ; Deposits etc.

(b) Trade Payable: Trade Payable is sum total of Bills Payable and Creditors. It is the amount
which business has to pay against credit purchase of goods and services.

Address: Equilibrium Classes, Near Pahari Mandir, Rani sati mandir lane, Ratu Road,
Ranchi (Jharkhand) - Ph. No. 9840885790. pg. 3
(c) Other current liabilities
• Current maturities of long term debts
• Interest accrued but not due on borrowings
• Interest accrued and due on borrowings but not yet paid.
• Income received in advance.
• Calls in advance
• Outstanding expenses
• Unclaimed (unpaid) dividend
(d) Short Term Provisions: It refers to provisions for liabilities which are likely to be paid
within 12 months from date of preparation of Balance sheet.
• Provision for employees benefits
• Provision for expenses
• Provision for tax
Note: Provision for doubtful debts and provision for discount on debtors are not shown
under short term provisions. They are shown by way of deduction from the amount of trade
receivable.
Provision for depreciation is also not shown under short term
provision. It is shown by way of deduction from the amount of fixed assets.

(B) ASSETS
• Assets are classified into two categories:
(a) Non – Current Assets
(b) Current Assets
(B.1) Non-Current Assets
Non – Current Assets are classified into five heads:
(a) Fixed assets: Fixed assets refers to assets which are held by the company not for the
purpose of resale but will be used to increase the earnings of the company.
It is divided into four categories:

• Tangible assets
• Intangible assets
Goodwill; Trademark; computer software; patents; mining rights etc.
• Capital work in progress i.e. tangible assets under construction
• Intangible assets under development

(b) Non-Current Investment: Investments which are held by a company for a period of more
than 12 months from date of preparing balance sheet.
(c) Net deferred Tax Asset

Address: Equilibrium Classes, Near Pahari Mandir, Rani sati mandir lane, Ratu Road,
Ranchi (Jharkhand) - Ph. No. 9840885790. pg. 4
(d) Long Term Loans and Advances: It refers to loans and advances provides that company is
expecting to receive after a period of 12 months from date of preparation of Balance
Sheet.
• Long term loans given to employees
• Long term loans given to suppliers.
• Security deposits such as security deposits for office; telephone etc.
• Capital advances i.e. loans given to some third party so that they can acquire fixed
assets.

(e) Other Non-Current Assets: All the non-current assets which are not a part of any of the
above categories are classified under other non-current assets.

• Long Term Trade Receivable

• Expense and losses which are to be written off after a period of 12 months from date
of preparation of balance sheet.

Current Assets
Current assets are classified into six categories:
(a) Current Investments: Investments which will mature within a period of 12 months.
(b) Inventories
• Raw materials * Work in progress
• Finished goods * Stock in trade
• Stores and spares * Loose tools

(c) Trade receivable: It refers to sum total of debtors and bills receivable less provision for
doubtful debts and provision for discount on debtors.
(d) Cash and Cash equivalents
• Cash at bank
• Cash in hand
• Cheques / drafts in hand
• Marketable securities
(e) Short Term Loans and Advances: Loans and advances which are expected to be realized
within a period of 12 months.
(f) Other Current Assets: Prepaid expenses; Dividend receivable; Accrued Income etc.

QUESTIONS TO BE DONE IN CLASS

1. What are current assets? List the major sub-headings under the heading assets of the
balance sheet of a company as per Schedule III of Companies Act, 2013. [Delhi 2008]

2. Show the major headings under the equity and liabilities heading of the balance sheet of
a company as per Schedule III of companies act, 2013. [AI 2008]

Address: Equilibrium Classes, Near Pahari Mandir, Rani sati mandir lane, Ratu Road,
Ranchi (Jharkhand) - Ph. No. 9840885790. pg. 5
3. Define the following terms:
(a) Operating Cycle
(b) Trade Receivable
(c) Trade Payable [AI 2008]

4. What are non-current liabilities? List the items which are shown under the head of
current liabilities as per Schedule III, Part I of Companies Act, 2013. [Delhi 2011]

5. List the items which are shown under the head “Current Assets” in the balance sheet of
a company as per Schedule III, Part I of Companies Act, 2013. [Delhi 2011]

6. Give the major heading and sub-heading under which the following items will be shown
in a company’s balance sheet as per Schedule III, Part I of Companies Act, 2013: [AI 2011]
(a) Sundry Creditors (d) Loose tools
(b) Provision for tax (e) Interest accrued on investment
(c) Preliminary expenses (f) Goodwill
7. Give the major heading and sub-heading under which the following items will be shown
in a company’s balance sheet as per Schedule III, Part I of Companies Act, 2013: [AI 2011]
(a) Long term investment (d) Discount on issue of shares
(b) Bills of exchange (e) Securities Premium Reserve
(c) Motor Car (f) Unclaimed dividend
8. Under what heads and sub-heads the following items will appear in the balance sheet of
the company as per revised schedule iii, of Companies Act 2013: [Delhi 2013]
(a) Premium on redemption of debentures
(b) Loose tools
(c) Balance with banks

9. Under what heads and sub-heads the following items will appear in the balance sheet of
the company as per revised schedule iii, of Companies Act 2013: [Delhi 2013]
(a) Tax reserve
(b) Interest on calls in advance
(c) Stores and spares
10. Under what heads and sub-heads the following items will appear in the balance sheet
of the company as per revised schedule iii, of Companies Act 2013: [Delhi 2013]
(a) Mining rights
(b) Encashment of employees earned leave payable on retirement
(c) Vehicles

11. Under what heads and sub-heads the following items will appear in the balance sheet
of the company as per revised schedule iii, of Companies Act 2013: [AI 2013]
(a) Debentures
(b) Loose tools
(c) Calls in advance
Address: Equilibrium Classes, Near Pahari Mandir, Rani sati mandir lane, Ratu Road,
Ranchi (Jharkhand) - Ph. No. 9840885790. pg. 6
12. Under what heads and sub-heads the following items will appear in the balance sheet
of the company as per revised schedule iii, of Companies Act 2013: [AI 2013]
(a) Subsidy Reserve
(b) Mining rights
(c) Provision for doubtful debts
13. Under what heads and sub-heads the following items will appear in the balance sheet
of the company as per revised schedule iii, of Companies Act 2013: [AI 2013]
(a) Stores and spares
(b) Proposed dividend
(c) Computer software

14. Under what sub-heads the following items will appear in the balance sheet of the
company as per revised schedule iii, of Companies Act 2013: [AI 2014]
(a) Capital reserve (d) Vehicles
(b) Bonds (e) Goodwill
(c) Loans payable on demand (f) Loose tools
15. Under which major heads the following items will appear in the balance sheet of the
company as per revised schedule iii, of Companies Act 2013: [Delhi 2015]
(a) Loans provided repayable on demand (e) Cheques
(b) Goodwill (f) General Reserve
(c) Copyrights (g) Stock of finished goods
(d) Loose tools (h) 9% debentures repayable after three years
16. Under which major heads the following items will appear in the balance sheet of the
company as per Schedule III, of Companies Act 2013: [Delhi 2015]
(a) Securities Premium Reserve (e) Loan repayable on demand
(b) Balances with banks (f) Computer software
(c) Term loan from bank (g) Unpaid dividend
(d) Goods in transit (h) Vehicles

17. Under which major heads the following items will appear in the balance sheet of the
company as per revised schedule iii, of Companies Act 2013: [Delhi 2015]
(a) Cash in hand (e) Income received in advance
(b) Mining Rights (f) Balance of statement of Profit and loss
(c) Short term deposits (g) Office equipments
(d) Debenture Redemption Reserve (h) Work in progress

18. Under what heads and sub-heads the following items will appear in the balance sheet
of the company as per revised schedule iii, of Companies Act 2013: [AI 2015]
(a) Capital Redemption Reserve (e) Unpaid dividend
(b) Net Loss as shown by statement of profit and loss (f) Buildings
(c) Bonds (g) Trademarks
(d) Loans repayable on demand (h) Raw materials

Address: Equilibrium Classes, Near Pahari Mandir, Rani sati mandir lane, Ratu Road,
Ranchi (Jharkhand) - Ph. No. 9840885790. pg. 7
19. Under what heads and sub-heads the following items will appear in the balance sheet
of the company as per revised schedule iii, of Companies Act 2013: [AI 2015]
(a) Cheque in hand (e) Provision for bad debts
(b) Stock of work in progress (f) Bonds
(c) Copyrights (g) Unpaid dividend
(d) Loose tools
20. Under what heads and sub-heads the following items will appear in the balance sheet
of the company as per revised schedule iii, of Companies Act 2013: [AI 2015]
(a) Loan of ₹1,00,000 payable after three years
(b) Short term deposit payable on demand
(c) Trade mark (e) Marketable securities
(d) Land (f) Trade payables

21. Under what heads and sub-heads the following items will appear in the balance sheet
of the company as per revised schedule iii, of Companies Act 2013: [Delhi 2015 C]
(a) Bank overdraft (c) Loose tools
(b) Cheque in hand (d) Long term provision
22. Under what heads and sub-heads the following items will appear in the balance sheet
of the company as per revised schedule iii, of Companies Act 2013: [AI 2015 C]
(a) Long term loan (c) Trademarks
(b) Loose tools (d) Drafts in hand
23. Name any two items that are shown under the head “Other current liabilities” and two
items that are shown under the head “Other Current Assets” in the balance sheet of a
company as per Schedule III of Companies Act, 2013. [Delhi 2016] [AI 2016]

24. Under what heads and sub-heads the following items will appear in the balance sheet
of the company as per revised schedule iii, of Companies Act 2013: [AI 2017]
(a) Capital Reserve (d) Loose tools
(b) Calls in advance (e) Bank overdraft
(c) Short term loans and advances (f) Design
25. JW Ltd. was a company manufacturing geysers. As a part of its long term goal for
expansion, the company decided to identify the opportunity in rural areas. Initial plan was
rolled out for Bhiwani village in Haryana. Since the village did not have regular supply of
electricity, the company decided to manufacture solar geysers. The core team consisting of
the Regional manager, accountant and the marketing manager was taken from head office
and the remaining employees were selected from the village and the neighbourhood areas.
At the time of preparation of financial statements, the accountant of the
company fell sick and the company deputed a junior accountant temporarily from the
village for two months.
The balance sheet prepared by the junior accountant showed the
following items against the major head and sub heads mentioned which were not as per
Schedule III of companies act, 2013.

Address: Equilibrium Classes, Near Pahari Mandir, Rani sati mandir lane, Ratu Road,
Ranchi (Jharkhand) - Ph. No. 9840885790. pg. 8
 Items Major head/Sub head
Loose tools Trade receivable
Cheque in hand Current investments
Term loan from bank Other long term liabilities
Computer software Tangible fixed assets
Identify any two values that the company wants to communicate to the
society. Also present the above items under the correct major head and sub head as per
schedule III of Companies Act, 2013. [AI 2018]

26. Under which major heading and subheadings the following items be presented in the
balance sheet of a company as per Schedule III of Companies Act, 2013? [AI 2019]
(a) Balance of Statement of Profit and Loss
(b) Interest accrued on investment
(c) Live stock
(d) Licenses and Franchise
(e) Securities Premium Reserve
(f) Trademarks
(g) Work in progress
(h) 9% debentures repayable during the current year
27. Under which major head and subhead the following items be presented in the balance
sheet of a company as per Schedule III of Companies Act, 2013? [NCERT]
(a) Receivables
(b) Preliminary expenses
(c) Investment in shares and debentures
(d) Underwriting Commission
(e) Short term loans and advances
(f) Long term loans and advances
(g) Call unpaid/Calls in arrears
(h) Prepaid Insurance
(i) Discount allowed on issue of debentures (if amortised after 12 months)
(j) Discount allowed on issue of debentures (if amortised within 12 months)
(k) Loss on issue of debenture
(l) Advance to suppliers
(m) Deposits with custom authorities
(n) Brokerage on issue of shares
(o) Capital work in progress
(p) Provision for discount on debtors
(q) Provision for depreciation

28. List any four items other than “Stock in trade” that are presented under the sub head
“Inventories” as per Schedule III of the companies act, 2013. [AI 2016]

Address: Equilibrium Classes, Near Pahari Mandir, Rani sati mandir lane, Ratu Road,
Ranchi (Jharkhand) - Ph. No. 9840885790. pg. 9
29. Under which subheads the following items be presented in the balance sheet of a
company as per Schedule III of Companies Act, 2013? [Foreign 2014]
(a) Long term loans (d) Goodwill
(b) Capital Redemption Reserve (e) Provision for warranties
(c) Short term provisions (g) Brand / Trademark
30. Under which major head and subhead the following items be presented in the balance
sheet of a company as per Schedule III of Companies Act, 2013? [Delhi 2014 C]
(a) Long term borrowings (d) Securities Premium Reserve
(b) Trade Payables (e) Patents
(c) Provision for tax (f) Accrued income
31. Under which major head and subhead the following items be presented in the balance
sheet of a company as per Schedule III of Companies Act, 2013? [AI 2017C]
(a) Capital work in progress (c) Income received in advance
(b) Provision for warranties (d) Capital advance

32. Under which major heads and sub-heads will the following items be places in the
Balance sheet of the company as per schedule III, Part 1 of companies act 2013:
(a) Debentures with maturity period in the current financial year
(b) Securities premium reserve
(c) Employees provident fund/Provident fund [CBSE SAMPLE PAPER 19-20]

33. Under which major heads and sub-heads will the following items be places in the
Balance sheet of the company as per schedule III, Part 1 of companies act 2013:
(a) current maturities of long term debt
(b) furniture and fixtures
(c) provision for warranties
(d) income received in advance
(e) capital advance
(f) advances recoverable in cash within the operation cycle [CBSE SAMPLE PAPER 22-23]

34. Under which major heads and sub-heads will the following items be places in the
Balance sheet of the company as per schedule III, Part 1 of companies act 2013:
(a) Trade payables
(b) Provision for tax
(c) Bank overdraft (d) Goodwill
(e) Unclaimed dividend
(f) Loose tools [CBSE 2020]
35. Under which major heads and sub-heads will the following items be places in the
Balance sheet of the company as per schedule III, Part 1 of companies act 2013:
(a) Prepaid insurance (e) Capital reserves
(b) Investment in debentures (f) Loose tools
(c) Calls in arrears (g) Capital work in progress
(d) Unpaid dividend
(h) Patents being developed by the company [CBSE 2019]
Address: Equilibrium Classes, Near Pahari Mandir, Rani sati mandir lane, Ratu Road,
Ranchi (Jharkhand) - Ph. No. 9840885790. pg. 10
36. Under which major heads and sub-heads will the following items be places in the
Balance sheet of the company as per schedule III, Part 1 of companies act 2013:
(a) Interest accrued and due on debentures
(b) Accrued interest on calls in advance
(c) Interest due on calls in arrears
(d) Premium on redemption of debentures [CBSE 2019]
37. Under which major heads and sub-heads will the following items be places in the
Balance sheet of the company as per schedule III, Part 1 of companies act 2013:
(a) Balance in statement of profit and loss
(b) Interest accrued on investments
(c) Livestock
(d) work in progress
(e) License and franchise
(f) Publishing titles
(g) Mining rights
(h) long term investment with maturity period of less than 6 months [CBSE 2019]

38. Under which major heads and sub-heads will the following items be places in the
Balance sheet of the company as per schedule III, Part 1 of companies act 2013:
(a) computer software
(b) outstanding salary
39. Which of the following is not a subhead under the current assets?
(a) cash and cash equivalents
(b) trademarks
(c) short term loans and advance
(d) inventories [CBSE 2020]
40. “Public deposits” appear in the company’s balance sheet under the head/sub-head?
(a) Intangible assets
(b) current liabilities
(c) shareholder’s fund
(d) Non-current liabilities [CBSE 20 20]

41. Classify the following items under major heads and sub heads (if any) in the balance
sheet of a company as per schedule 3 of companies act 2013. [CBSE SAMPLE PAPER 23-24]
(a) Loose tools
(b) loan repayable on demand
(c) provision for retirement benefits
(d) prepaid insurance
(e) capital advances
(f) shares in listed companies

Address: Equilibrium Classes, Near Pahari Mandir, Rani sati mandir lane, Ratu Road,
Ranchi (Jharkhand) - Ph. No. 9840885790. pg. 11
Address: Equilibrium Classes, Near Pahari Mandir, Rani sati mandir lane, Ratu Road,
Ranchi (Jharkhand) - Ph. No. 9840885790. pg. 12