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Financial Statements of Companies
UNIT I
PREPARATION OF FINANCIAL STATEMENTS
Q-1 You are required to prepare a Balance Sheet as at 31st March 2018, as per Schedule III of the Companies
Act, 2013, from the following information of Mehar Ltd.:
Particulars Amount (Rs.) Particulars Amount (Rs)
Term Loans (Secured) 40,00,000 Investments (Non-current) 9,00,000
Trade payables 45,80,000 Profit for the year 32,00,000
Other advances 14,88,000 Trade receivables 49,00,000
Cash and Bank Balances 38,40,000 Miscellaneous Expenses 2,32,000
Staff Advances 2,20,000 Loan from other parties 8,00,000
Provision for Taxation 10,20,000 Provision for Doubtful Debts 80,000
Securities Premium 19,00,000
Loose Tools 2,00,000 Stores 16,00,000
General Reserve 62,00,000 Fixed Assets (WDV) 2,26,00,000
Capital Work-in- progress 8,00,000 Finished Goods 30,00,000
Additional Information:-
1. Share Capital consist of-
(a)1,20,000 Equity Shares of Rs.100 each fully paid up.
(b)40,000, 10% Redeemable Preference Shares of Rs.100 each fully paid up.
2. The company declared dividend @ 5% of equity share capital. The dividend distribution tax rate is
17.304%. (15% CDT, surcharge 12%, Education Cess 2%andSHEC@1%)
3. Depreciate Assets by Rs.20,00,000.
Ans.                         Balance Sheet of Mehar Ltd. as at 31st March, 2018
Note Rs.
I EQUITY AND LIABILITIES:
(1) (a)   Share Capital 1 1,60,00,000
(b)   Reserves and Surplus 2 98,64,424
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Page 2


Financial Statements of Companies
UNIT I
PREPARATION OF FINANCIAL STATEMENTS
Q-1 You are required to prepare a Balance Sheet as at 31st March 2018, as per Schedule III of the Companies
Act, 2013, from the following information of Mehar Ltd.:
Particulars Amount (Rs.) Particulars Amount (Rs)
Term Loans (Secured) 40,00,000 Investments (Non-current) 9,00,000
Trade payables 45,80,000 Profit for the year 32,00,000
Other advances 14,88,000 Trade receivables 49,00,000
Cash and Bank Balances 38,40,000 Miscellaneous Expenses 2,32,000
Staff Advances 2,20,000 Loan from other parties 8,00,000
Provision for Taxation 10,20,000 Provision for Doubtful Debts 80,000
Securities Premium 19,00,000
Loose Tools 2,00,000 Stores 16,00,000
General Reserve 62,00,000 Fixed Assets (WDV) 2,26,00,000
Capital Work-in- progress 8,00,000 Finished Goods 30,00,000
Additional Information:-
1. Share Capital consist of-
(a)1,20,000 Equity Shares of Rs.100 each fully paid up.
(b)40,000, 10% Redeemable Preference Shares of Rs.100 each fully paid up.
2. The company declared dividend @ 5% of equity share capital. The dividend distribution tax rate is
17.304%. (15% CDT, surcharge 12%, Education Cess 2%andSHEC@1%)
3. Depreciate Assets by Rs.20,00,000.
Ans.                         Balance Sheet of Mehar Ltd. as at 31st March, 2018
Note Rs.
I EQUITY AND LIABILITIES:
(1) (a)   Share Capital 1 1,60,00,000
(b)   Reserves and Surplus 2 98,64,424
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(2) Non-current Liabilities
Long term Borrowings- 40,00,000
Terms Loans (Secured)
(3) Current Liabilities
(a)   Trade Payables - 45,80,000
(b)   Other current liabilities 3 20,03,576
(c)    Short-term Provisions (Provision for taxation) 10,20,000
Total 3,74,68,000
II ASSETS
(1) Non-current Assets
(a)    Fixed Assets:
(i)    Tangible Assets 4 2,06,00,000
(ii)   Capital WIP 8,00,000
(b)    Non- current Investments 9,00,000
(2) Current Assets:
(a)    Inventories 5 48,00,000
(b)   Trade Receivables 6 48,20,000
(c)    Cash and Cash Equivalents 38,40,000
(d)   Short-term Loans and Advances 7 17,08,000
Total 3,74,68,000
Notes to account
Rs.
1. Share Capital
Authorized, issued, subscribed & called up
1,20,000, Equity Shares of Rs. 100 each 1,20,00,000
40,000 10% Redeemable Preference Shares of 100 each 40,00,000 1,60,00,000
2. Reserves and Surplus
Securities Premium Account 19,00,000
General reserve 62,00,000
Profit & Loss Balance
Opening balance
Profit for the period 32,00,000
Less; Miscellaneous Expenditure written off (2,32,000)
29,68,000
Less: Appropriations
Dividend (10,00,000)
Dividend distribution tax (2,03,576) 17,64,424 98,64,424
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Page 3


Financial Statements of Companies
UNIT I
PREPARATION OF FINANCIAL STATEMENTS
Q-1 You are required to prepare a Balance Sheet as at 31st March 2018, as per Schedule III of the Companies
Act, 2013, from the following information of Mehar Ltd.:
Particulars Amount (Rs.) Particulars Amount (Rs)
Term Loans (Secured) 40,00,000 Investments (Non-current) 9,00,000
Trade payables 45,80,000 Profit for the year 32,00,000
Other advances 14,88,000 Trade receivables 49,00,000
Cash and Bank Balances 38,40,000 Miscellaneous Expenses 2,32,000
Staff Advances 2,20,000 Loan from other parties 8,00,000
Provision for Taxation 10,20,000 Provision for Doubtful Debts 80,000
Securities Premium 19,00,000
Loose Tools 2,00,000 Stores 16,00,000
General Reserve 62,00,000 Fixed Assets (WDV) 2,26,00,000
Capital Work-in- progress 8,00,000 Finished Goods 30,00,000
Additional Information:-
1. Share Capital consist of-
(a)1,20,000 Equity Shares of Rs.100 each fully paid up.
(b)40,000, 10% Redeemable Preference Shares of Rs.100 each fully paid up.
2. The company declared dividend @ 5% of equity share capital. The dividend distribution tax rate is
17.304%. (15% CDT, surcharge 12%, Education Cess 2%andSHEC@1%)
3. Depreciate Assets by Rs.20,00,000.
Ans.                         Balance Sheet of Mehar Ltd. as at 31st March, 2018
Note Rs.
I EQUITY AND LIABILITIES:
(1) (a)   Share Capital 1 1,60,00,000
(b)   Reserves and Surplus 2 98,64,424
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(2) Non-current Liabilities
Long term Borrowings- 40,00,000
Terms Loans (Secured)
(3) Current Liabilities
(a)   Trade Payables - 45,80,000
(b)   Other current liabilities 3 20,03,576
(c)    Short-term Provisions (Provision for taxation) 10,20,000
Total 3,74,68,000
II ASSETS
(1) Non-current Assets
(a)    Fixed Assets:
(i)    Tangible Assets 4 2,06,00,000
(ii)   Capital WIP 8,00,000
(b)    Non- current Investments 9,00,000
(2) Current Assets:
(a)    Inventories 5 48,00,000
(b)   Trade Receivables 6 48,20,000
(c)    Cash and Cash Equivalents 38,40,000
(d)   Short-term Loans and Advances 7 17,08,000
Total 3,74,68,000
Notes to account
Rs.
1. Share Capital
Authorized, issued, subscribed & called up
1,20,000, Equity Shares of Rs. 100 each 1,20,00,000
40,000 10% Redeemable Preference Shares of 100 each 40,00,000 1,60,00,000
2. Reserves and Surplus
Securities Premium Account 19,00,000
General reserve 62,00,000
Profit & Loss Balance
Opening balance
Profit for the period 32,00,000
Less; Miscellaneous Expenditure written off (2,32,000)
29,68,000
Less: Appropriations
Dividend (10,00,000)
Dividend distribution tax (2,03,576) 17,64,424 98,64,424
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3. Other current liabilities
Loan from other parties Dividend 8,00,000
Dividend 10,00,00
Distribution tax [W.N] 2,03,576 20,03,576
4. Tangible assets
Fixed Assets
Opening balance 2,26,00,000
Less; Depreciation 20,00,000
Closing balance 2,06,00,000
5. Inventories
Finished Goods 30,00,000
Stores 16,00,000
Loose Tools 2,00,000 48,00,000
6. Trade Receivables
Trade receivables 49,00,000
Less: Provision for Doubtful Debts 80,000 48,20,000
7. Short term loans & Advances
Staff Advances 2,20,000
Other Advances 14,88,000 17,08,000
Working Note:
Calculation of Dividend distribution tax
(i) Grossing-up of dividend:
Dividend distributed by Mehar Ltd.
Equity shares dividend 6,00,000
Preference share dividend 4,00,000 10,00,000
Add:Increase for the purpose of grossing up of dividend
10,00,000 x[15 /(100-15)] 1,76,470
Gross dividend 11,76,470
(ii) Dividend distribution tax @ 17.304%    2,03,576
Q-2 PQ Ltd., a non-investment company has been incurring losses for the past few years. The company
provides the following information for the current year:
(Rs.In lakhs)
Paid up equity share capital 180
Paid up preference share capital 30
Reserves (including Revaluation reserve Rs.15 lakhs) 225
Securities premium 60
Long term loans 60
Deposits repayable after one year 30
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Page 4


Financial Statements of Companies
UNIT I
PREPARATION OF FINANCIAL STATEMENTS
Q-1 You are required to prepare a Balance Sheet as at 31st March 2018, as per Schedule III of the Companies
Act, 2013, from the following information of Mehar Ltd.:
Particulars Amount (Rs.) Particulars Amount (Rs)
Term Loans (Secured) 40,00,000 Investments (Non-current) 9,00,000
Trade payables 45,80,000 Profit for the year 32,00,000
Other advances 14,88,000 Trade receivables 49,00,000
Cash and Bank Balances 38,40,000 Miscellaneous Expenses 2,32,000
Staff Advances 2,20,000 Loan from other parties 8,00,000
Provision for Taxation 10,20,000 Provision for Doubtful Debts 80,000
Securities Premium 19,00,000
Loose Tools 2,00,000 Stores 16,00,000
General Reserve 62,00,000 Fixed Assets (WDV) 2,26,00,000
Capital Work-in- progress 8,00,000 Finished Goods 30,00,000
Additional Information:-
1. Share Capital consist of-
(a)1,20,000 Equity Shares of Rs.100 each fully paid up.
(b)40,000, 10% Redeemable Preference Shares of Rs.100 each fully paid up.
2. The company declared dividend @ 5% of equity share capital. The dividend distribution tax rate is
17.304%. (15% CDT, surcharge 12%, Education Cess 2%andSHEC@1%)
3. Depreciate Assets by Rs.20,00,000.
Ans.                         Balance Sheet of Mehar Ltd. as at 31st March, 2018
Note Rs.
I EQUITY AND LIABILITIES:
(1) (a)   Share Capital 1 1,60,00,000
(b)   Reserves and Surplus 2 98,64,424
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(2) Non-current Liabilities
Long term Borrowings- 40,00,000
Terms Loans (Secured)
(3) Current Liabilities
(a)   Trade Payables - 45,80,000
(b)   Other current liabilities 3 20,03,576
(c)    Short-term Provisions (Provision for taxation) 10,20,000
Total 3,74,68,000
II ASSETS
(1) Non-current Assets
(a)    Fixed Assets:
(i)    Tangible Assets 4 2,06,00,000
(ii)   Capital WIP 8,00,000
(b)    Non- current Investments 9,00,000
(2) Current Assets:
(a)    Inventories 5 48,00,000
(b)   Trade Receivables 6 48,20,000
(c)    Cash and Cash Equivalents 38,40,000
(d)   Short-term Loans and Advances 7 17,08,000
Total 3,74,68,000
Notes to account
Rs.
1. Share Capital
Authorized, issued, subscribed & called up
1,20,000, Equity Shares of Rs. 100 each 1,20,00,000
40,000 10% Redeemable Preference Shares of 100 each 40,00,000 1,60,00,000
2. Reserves and Surplus
Securities Premium Account 19,00,000
General reserve 62,00,000
Profit & Loss Balance
Opening balance
Profit for the period 32,00,000
Less; Miscellaneous Expenditure written off (2,32,000)
29,68,000
Less: Appropriations
Dividend (10,00,000)
Dividend distribution tax (2,03,576) 17,64,424 98,64,424
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3. Other current liabilities
Loan from other parties Dividend 8,00,000
Dividend 10,00,00
Distribution tax [W.N] 2,03,576 20,03,576
4. Tangible assets
Fixed Assets
Opening balance 2,26,00,000
Less; Depreciation 20,00,000
Closing balance 2,06,00,000
5. Inventories
Finished Goods 30,00,000
Stores 16,00,000
Loose Tools 2,00,000 48,00,000
6. Trade Receivables
Trade receivables 49,00,000
Less: Provision for Doubtful Debts 80,000 48,20,000
7. Short term loans & Advances
Staff Advances 2,20,000
Other Advances 14,88,000 17,08,000
Working Note:
Calculation of Dividend distribution tax
(i) Grossing-up of dividend:
Dividend distributed by Mehar Ltd.
Equity shares dividend 6,00,000
Preference share dividend 4,00,000 10,00,000
Add:Increase for the purpose of grossing up of dividend
10,00,000 x[15 /(100-15)] 1,76,470
Gross dividend 11,76,470
(ii) Dividend distribution tax @ 17.304%    2,03,576
Q-2 PQ Ltd., a non-investment company has been incurring losses for the past few years. The company
provides the following information for the current year:
(Rs.In lakhs)
Paid up equity share capital 180
Paid up preference share capital 30
Reserves (including Revaluation reserve Rs.15 lakhs) 225
Securities premium 60
Long term loans 60
Deposits repayable after one year 30
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Application money pending allotment 1080
Accumulated losses not written off 30
Investments 270
PQ Ltd. has only one whole-time director, Mr. Hello. You are required to calculate the amount of maximum
remuneration that can be paid to him as per provisions of Companies Act, 2013, if no special resolution
is passed at the general meeting of the company in respect of payment of remuneration for a period not
exceeding three years.
Ans. Calculation of effective capital and maximum amount of monthly remuneration
(Rs.In lakhs)
Paid up equity share capital 180
Paid up Preference share capital 30
Reserve excluding Revaluation reserve (225-15) 210
Securities premium 60
Long term loans 60
Deposits repayable after one year 30
570
Less; Accumulated losses not written off 30
Investments 270
Effective capital for the purpose of managerial remuneration 270
Since PQ Ltd. is incurring losses and no special resolution has been passed by the company for payment
of remuneration, managerial remuneration will be calculated on the basis of effective capital of the
company, therefore maximum remuneration payable to the Managing Director should be @ Rs.60,00,000
per annum*.
*lf the effective capital is less then 5 Crore, limit of yearly remuneration payable should not exce ed
Rs.60 lakhs as per Companies Act, 2013.
Q-3 Kapil Ltd. has authorized capital of Rs. 50 lakhs divided into 5,00,000 equity shares of Rs. 10 each. Their
books show the following balances as on 31st March, 2017:
Rs. Rs.
Inventory 1.4.2016 6,65,000 Bank Current Account 20,000
Discounts & Rebates allowed 30,000 Cash in hand 8,000
Carriage Inwards 57,500 Interest (bank overdraft) 1,11,000
Patterns 3,75,000 Calls in Arrear @ Rs.2 per share 10,000
Rate, Taxes and Insurance 55,000 Equity share capital 20,00,000
Furniture & Fixtures 1,50,000 (2,00,000 shares of Rs.10 each)
Purchases 12,32,500 Bank Overdraft 12,67,000
Wages 13,68,000
Freehold Land 16,25,000 Trade Payables (for goods) 2,40,000
Plant & Machinery 7,50,000 Sales 36,17,000
Engineering Tools 1,50,000 Rent (Cr.) 30,000
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Page 5


Financial Statements of Companies
UNIT I
PREPARATION OF FINANCIAL STATEMENTS
Q-1 You are required to prepare a Balance Sheet as at 31st March 2018, as per Schedule III of the Companies
Act, 2013, from the following information of Mehar Ltd.:
Particulars Amount (Rs.) Particulars Amount (Rs)
Term Loans (Secured) 40,00,000 Investments (Non-current) 9,00,000
Trade payables 45,80,000 Profit for the year 32,00,000
Other advances 14,88,000 Trade receivables 49,00,000
Cash and Bank Balances 38,40,000 Miscellaneous Expenses 2,32,000
Staff Advances 2,20,000 Loan from other parties 8,00,000
Provision for Taxation 10,20,000 Provision for Doubtful Debts 80,000
Securities Premium 19,00,000
Loose Tools 2,00,000 Stores 16,00,000
General Reserve 62,00,000 Fixed Assets (WDV) 2,26,00,000
Capital Work-in- progress 8,00,000 Finished Goods 30,00,000
Additional Information:-
1. Share Capital consist of-
(a)1,20,000 Equity Shares of Rs.100 each fully paid up.
(b)40,000, 10% Redeemable Preference Shares of Rs.100 each fully paid up.
2. The company declared dividend @ 5% of equity share capital. The dividend distribution tax rate is
17.304%. (15% CDT, surcharge 12%, Education Cess 2%andSHEC@1%)
3. Depreciate Assets by Rs.20,00,000.
Ans.                         Balance Sheet of Mehar Ltd. as at 31st March, 2018
Note Rs.
I EQUITY AND LIABILITIES:
(1) (a)   Share Capital 1 1,60,00,000
(b)   Reserves and Surplus 2 98,64,424
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(2) Non-current Liabilities
Long term Borrowings- 40,00,000
Terms Loans (Secured)
(3) Current Liabilities
(a)   Trade Payables - 45,80,000
(b)   Other current liabilities 3 20,03,576
(c)    Short-term Provisions (Provision for taxation) 10,20,000
Total 3,74,68,000
II ASSETS
(1) Non-current Assets
(a)    Fixed Assets:
(i)    Tangible Assets 4 2,06,00,000
(ii)   Capital WIP 8,00,000
(b)    Non- current Investments 9,00,000
(2) Current Assets:
(a)    Inventories 5 48,00,000
(b)   Trade Receivables 6 48,20,000
(c)    Cash and Cash Equivalents 38,40,000
(d)   Short-term Loans and Advances 7 17,08,000
Total 3,74,68,000
Notes to account
Rs.
1. Share Capital
Authorized, issued, subscribed & called up
1,20,000, Equity Shares of Rs. 100 each 1,20,00,000
40,000 10% Redeemable Preference Shares of 100 each 40,00,000 1,60,00,000
2. Reserves and Surplus
Securities Premium Account 19,00,000
General reserve 62,00,000
Profit & Loss Balance
Opening balance
Profit for the period 32,00,000
Less; Miscellaneous Expenditure written off (2,32,000)
29,68,000
Less: Appropriations
Dividend (10,00,000)
Dividend distribution tax (2,03,576) 17,64,424 98,64,424
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3. Other current liabilities
Loan from other parties Dividend 8,00,000
Dividend 10,00,00
Distribution tax [W.N] 2,03,576 20,03,576
4. Tangible assets
Fixed Assets
Opening balance 2,26,00,000
Less; Depreciation 20,00,000
Closing balance 2,06,00,000
5. Inventories
Finished Goods 30,00,000
Stores 16,00,000
Loose Tools 2,00,000 48,00,000
6. Trade Receivables
Trade receivables 49,00,000
Less: Provision for Doubtful Debts 80,000 48,20,000
7. Short term loans & Advances
Staff Advances 2,20,000
Other Advances 14,88,000 17,08,000
Working Note:
Calculation of Dividend distribution tax
(i) Grossing-up of dividend:
Dividend distributed by Mehar Ltd.
Equity shares dividend 6,00,000
Preference share dividend 4,00,000 10,00,000
Add:Increase for the purpose of grossing up of dividend
10,00,000 x[15 /(100-15)] 1,76,470
Gross dividend 11,76,470
(ii) Dividend distribution tax @ 17.304%    2,03,576
Q-2 PQ Ltd., a non-investment company has been incurring losses for the past few years. The company
provides the following information for the current year:
(Rs.In lakhs)
Paid up equity share capital 180
Paid up preference share capital 30
Reserves (including Revaluation reserve Rs.15 lakhs) 225
Securities premium 60
Long term loans 60
Deposits repayable after one year 30
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Application money pending allotment 1080
Accumulated losses not written off 30
Investments 270
PQ Ltd. has only one whole-time director, Mr. Hello. You are required to calculate the amount of maximum
remuneration that can be paid to him as per provisions of Companies Act, 2013, if no special resolution
is passed at the general meeting of the company in respect of payment of remuneration for a period not
exceeding three years.
Ans. Calculation of effective capital and maximum amount of monthly remuneration
(Rs.In lakhs)
Paid up equity share capital 180
Paid up Preference share capital 30
Reserve excluding Revaluation reserve (225-15) 210
Securities premium 60
Long term loans 60
Deposits repayable after one year 30
570
Less; Accumulated losses not written off 30
Investments 270
Effective capital for the purpose of managerial remuneration 270
Since PQ Ltd. is incurring losses and no special resolution has been passed by the company for payment
of remuneration, managerial remuneration will be calculated on the basis of effective capital of the
company, therefore maximum remuneration payable to the Managing Director should be @ Rs.60,00,000
per annum*.
*lf the effective capital is less then 5 Crore, limit of yearly remuneration payable should not exce ed
Rs.60 lakhs as per Companies Act, 2013.
Q-3 Kapil Ltd. has authorized capital of Rs. 50 lakhs divided into 5,00,000 equity shares of Rs. 10 each. Their
books show the following balances as on 31st March, 2017:
Rs. Rs.
Inventory 1.4.2016 6,65,000 Bank Current Account 20,000
Discounts & Rebates allowed 30,000 Cash in hand 8,000
Carriage Inwards 57,500 Interest (bank overdraft) 1,11,000
Patterns 3,75,000 Calls in Arrear @ Rs.2 per share 10,000
Rate, Taxes and Insurance 55,000 Equity share capital 20,00,000
Furniture & Fixtures 1,50,000 (2,00,000 shares of Rs.10 each)
Purchases 12,32,500 Bank Overdraft 12,67,000
Wages 13,68,000
Freehold Land 16,25,000 Trade Payables (for goods) 2,40,000
Plant & Machinery 7,50,000 Sales 36,17,000
Engineering Tools 1,50,000 Rent (Cr.) 30,000
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Trade Receivables 4,00,500 Transfer fees received 6,500
Advertisement 15,000 Profit & Loss A/c (Cr.) 67,000
Commission & Brokerage 67,500 Repairs to Building 56,500
Business Expenses 56,000 Bed debts 25,500
The inventory (valued at cost or market value, which is lower) as on 31st March, 2017 was Rs. 7,08,0 00.
Outstanding liabilities for wages Rs.25,000 and business expenses Rs.36,000. Dividend declared @ 12% on
paid-up capital and it was decided to transfer to reserve @ 2.5% of profits.
Charge depreciation on closing written down amount of Plant & Machinery @ 5%, Engineering Tools @ 20%;
Patterns @ 10%; and Furniture & Fixtures @10%. Provide 25,000 as doubtful debts after writing off Rs.16,000 as
bad debts. Provide for income tax @ 30%. Corporate Dividend Tax Rate @ 17.304 (wherein Base Rate is 15%).
You are required to prepare Statement of Profit & Loss for the year ended 31st March, 2017 and Balance
Sheet as on that date.
Ans. Kapil Ltd.
Balance Sheet as at 31st March, 2017
Particulars Note No. Rs.
I Equity and Liabilities
(1) Shareholders’ Funds
(a) Share Capital 1 19,90,000
(b) Reserves and Surplus 2 59,586
(2) Current Liabilities
(a)   Trade Payables 2,40,500
(b)   Other Current Liabilities 3 13,28,000
(c)   Short-Term Provisions 4 4,07,414
Total 40,25,500
II ASSETS
(1) Non-Current Assets
(a)   Fixed Assets
(i)    Tangible Assets 5 29,30,000
(2) Current Assets
(a)   Inventories 7,08,000
(b)   Trade Receivables 6 3,59,500
(c)   Cash and Cash Equivalents 7 28,000
Total 40,25,500
Kapil Ltd.
Statement of Profit and Loss for the year ended 31st March, 2017
Particular Note No. (Rs.)
I Revenue from Operations 36,17,000
II Other Income 8 36,500
III Total Revenue [I + II] 36,53,500
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FAQs on Financial Statements of Companies - 1 Important Question & Answer - Advanced Accounting for CA Intermediate

1. What are financial statements?
Ans. Financial statements are formal records of the financial activities and position of a company, which provide information about its revenues, expenses, assets, and liabilities. These statements include the balance sheet, income statement, cash flow statement, and statement of changes in equity.
2. Why are financial statements important for companies?
Ans. Financial statements are important for companies as they provide a snapshot of the company's financial health and performance. These statements help in assessing the profitability, liquidity, and solvency of the business. They also assist in making informed decisions, such as obtaining financing, attracting investors, and evaluating the company's overall financial stability.
3. What is the purpose of the balance sheet?
Ans. The balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time. It shows the company's assets, liabilities, and shareholders' equity. The purpose of the balance sheet is to provide information about the company's financial strength, liquidity, and ability to meet its financial obligations.
4. What does the income statement show?
Ans. The income statement, also known as the profit and loss statement, shows a company's revenues, expenses, and net income or loss over a specific period. It provides information about the company's ability to generate profit from its operations. The income statement is important for assessing the company's profitability and performance.
5. How does the cash flow statement help in analyzing a company's financials?
Ans. The cash flow statement shows the inflows and outflows of cash and cash equivalents during a specific period. It provides information about the cash generated or used by a company's operating activities, investing activities, and financing activities. By analyzing the cash flow statement, investors and analysts can assess the company's ability to generate cash, its liquidity position, and its ability to meet its financial obligations.
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