Unit 1: Introduction to Company Accounts (Part - 2) CA CPT Notes | EduRev

Principles and Practice of Accounting

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CA CPT : Unit 1: Introduction to Company Accounts (Part - 2) CA CPT Notes | EduRev

The document Unit 1: Introduction to Company Accounts (Part - 2) CA CPT Notes | EduRev is a part of the CA CPT Course Principles and Practice of Accounting.
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5. maintenance of books of account
As per Section 128 of the Companies Act, 2013, Every company shall prepare and keep at its registered office books of account and other relevant books and papers and financial statement for every financial year which give a true and fair view of the state of the affairs of the company, including that of its branch office or offices, if any, and explain the transactions effected both at the registered office and its branches and such books shall be kept on accrual basis and according to the double entry system of accounting:

Provided further that the company may keep such books of account or other relevant papers in electronic mode in such manner as may be prescribed.

6. preparation of financial statements
Under Section 129 of the Companies Act, 2013, The financial statements shall give a true and fair view of the state of affairs of the company or companies, comply with the notified accounting standards and shall be in the form or forms as may be provided for different class or classes of companies, as prescribed in Schedule III. The Board of Directors of the company shall lay financial statements at every annual general meeting of a company.

Financial Statements as per Section 2(40) of the Companies Act, 2013, inter-alia include -

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

Provided that the financial statement, with respect to One Person Company, small company and dormant company, may not include the cash flow statement.
Requisites of Financial Statements
It shall give a true and fair view of the state of affairs of the company as at the end of the financial year.

Provisions Applicable

1. Specific Act is Applicable For instance any

  1. insurance company
  2. banking company or
  3. any company engaged in generation or supply of electricity* or
  4. any other class of company for which a Form of balance sheet or Profit and loss account has been prescribed under the Act governing such class of company

2. In case of all other companies
Balance Sheet as per Form set out in Part I of Schedule III and Statement of Profit and Loss as per Part II of Schedule III

Compliance with Accounting Standards
As per section 129 of the Companies Act, it is mandatory to comply with accounting standards notified by the Central Government from time to time.

Schedule III of the companies Act, 2013
As per section 129 of the Companies Act, 2013, Financial statements shall give a true and fair view of the state of affairs of the company or companies and comply with the accounting standards notified under section133 and shall be in the form or forms as may be provided for different class or classes of companies in Schedule III under the Act.

PART I – Form of BALANCE SHEET
Name of the Company…………………….
Balance Sheet as at……………………… 

(' in................... )

Particulars

Notes 

No.

Figures as 

at end of the current 

reporting 

period

Figures as at 

end of the 

previous 

reporting 

period


EQUITY AND LIABILITIES




1.

Shareholders' funds





a.

Share capital (A)


xxx

xxx


b.

Reserves and Surplus (B)


xxx

xxx


c.

Money received against share warrants


xxx

xxx

2.

Share application money pending allotment


xxx

xxx

3.

Non-current liabilities





a.

Long-term borrowings (C)


xxx

xxx


b.

Deferred tax liabilities (Net)


xxx

xxx


c.

Other long term liabilities


xxx

xxx


d.

Long-term provisions (D)


xxx

xxx

4.

Current liabilities





a.

Short-term borrowings (E)


xxx

xxx


b.

Trade Payables


xxx

xxx


c.

Other current liabilities (F)


xxx

xxx


d.

Short-term provisions


xxx

xxx


Total



xxx

xxx


ASSETS




1.

Non-current assets





a.

Property, Plant and Equipment






i. Tangible assets (G)


xxx

xxx



ii. Intangible assets (H)


xxx

xxx



iii. Capital Work-in-progress


xxx

xxx



iv. Intangible assets under development


xxx

xxx


b.

Non-current investments (I)


xxx

xxx


c.

Deferred tax assets (Net)


xxx

xxx


d.

Long-term loans and advances (J)


xxx

xxx


e.

Other non-current assets


xxx

xxx

2.

Current assets





a.

Current investments (K)


xxx

xxx


b.

Inventories (L)


xxx

xxx


c.

Trade receivables


xxx

xxx


d.

Cash and cash equivalents (M)


xxx

xxx


e.

Short-term loans and advances


xxx

xxx


f.

Other current assets


xxx

xxx


Total



xxx

xxx


Some items are to be explained as follows:
A. SHARE CAPITAL
For each class of share capital following points is to be kept in mind:
i. The number and amount of shares authorised.
ii. The number of shares which are issued, subscribed and fully paid and which are issued, subscribed but not fully paid.
iii. The par value per share.
iv. Shares outstanding at the beginning and at the end of the reporting period should be reconciled.
v. Calls unpaid.
vi. Forfeited shares.

B. RESERVES AND SURPLUS
Reserves and surplus can be distributed among the following sub-heads:
i. Capital reserves
ii. Capital redemption reserves
iii. Securities Premium
iv. Debenture Redemption reserve
v. Revaluation reserve
vi. Surplus; the balance as per profit and loss statement
vii. Other reserves (specify the nature and purpose)

C. LONG TERM BORROWINGS
Long term borrowings can be classified under the following sub-heads:
i. Bonds/Debentures
ii. Term loans
iii. Deferred payment liabilities
iv. Deposits
v. Long term maturities of finance lease obligations
vi. Loans and advances from related parties
vii. Other loans and advances (specify nature)

D. LONG TERM PROVISIONS
This can be classified as follows:
i. Employee benefits provision like gratuity, provident fund etc.
ii. Other provisions (specify the nature)

E. SHORT TERM BORROWINGS
Short term borrowings can be classified among the following sub-heads:
i. Loans repayable on demand
ii. Loans and advances from related parties
iii. Deposits
iv. Other loans and advances (specify the nature)

F. OTHER CURRENT LIABILITIES
Some of the other current liabilities can be grouped as under:
i. Interest accrued but not/and due on borrowings
ii. Income received in advance
iii. Unpaid dividends
iv. Application money received for allotment of securities and due for refund and interest accrued thereon
v. Other current liabilities (specify the nature)
A detailed report showing additions, disposals, acquisitions through business combinations and other adjustments and amount related to depreciation, impairment losses, revaluation etc. should be provided for each class of asset.

H. INTANGIBLE ASSETS
Intangible assets can be classified as follows:
i. Goodwill
ii. Brands/trademarks
iii. Computer software
iv. Mining rights
v. Publishing titles
vi. Copyrights, patents and other intellectual property rights, services and operating rights. vii. Licence and franchise
viii. Recipes, models, designs, formulae and prototypes
ix. Others (specify the nature)
A detailed report showing additions, disposals, acquisitions through business combinations and other adjustments and amount related to depreciation, impairment losses, revaluation etc. should be provided for each class of asset.

I. NON-CURRENT INVESTMENTS
Investments can be classified as under:
i. Investments in property
ii. Investments in equity instruments
iii. Investments in preference shares
iv. Investments in governments or trust securities
v. Investments in debentures or bonds
vi. Investments in mutual funds
vii. Investments in partnership firms
viii. Other non-current investments (specify the nature)

J. LONG TERM LOANS AND ADVANCES
It can be classified under the following sub-groups:
i. Capital advances ii. Security deposits
iii. Loans and advances to related parties
iv. Other loans and advances (specify nature)
The above shall also be sub-classified as follows:
i. Secured, considered goods
ii. Unsecured, considered goods
iii. Doubtful

K. CURRENT INVESTMENTS
It can be classified as follows:
i. Investments in equity instruments
ii. Investments in preference shares
iii. Investments in government or trust securities
iv. Investments in bonds or debentures
v. Investments in mutual funds
vi. Investments in partnership firms
vii. Other investments (specify the nature)

L. INVENTORIES
Inventories can be classified as:
i. Raw materials
ii. Work-in-progress
iii. Stores and spares
iv. Finished goods
v. Loose tools
vi. Stock in trade
vii. Goods in transit
viii. Others (specify the nature)

M. CASH AND CASH EQUIVALENTS
The following head can be classified as follows:
i. Balances with banks
ii. Cheques, drafts in hand
iii. Cash in hand
iv. Others (specify the nature)

PART II – Form of STATEMENT OF PROFIT AND LOSS
Name of the Company…………………….
Profit and Loss Statement for the year ended ………………………


(? In………)

Particulars

Note No.

Figures for the current reporting period

Figures for the previous reporting period

I.

Revenue from operations



xxx


xxx

II.

Other income



xxx


xxx

III.

Total Revenue (I + II)



xxx


xxx

IV.

Expenses:



xxx


xxx


Cost of materials consumed



xxx


xxx


Purchases of Stock-in-Trade



xxx


xxx


Changes in inventories of finished goods Work-in­Progress 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 and extraordinary items and tax (III-IV)



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 expense:







(1) Current tax


xxx


xxx



(2) Deferred tax


xxx

xxx

xxx

xxx

XI.

Profit (Loss) for the period from continuing operations (VII-VIII)



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


SUMMARY
1. Company’ is termed as an entity which is formed and incorporated under the Companies Act, 2013 or an existing company formed and registered under any of the previous company laws.
2. Salient features of a company include: Incorporated Association; Separate Legal Entity; Perpetual Existence; Common Seal; Limited Liability; Distinction between Ownership and Management; Not a citizen; Transferability of Shares; Maintenance of Books; Periodic Audit; Right of Access to Information.
3. Types of companies: Government Company: Foreign Company; Private Company; Public Company; One Person Company; Small Company; Listed Company; Unlimited Company; Company limited by Shares; Company limited by Guarantee; Holding Company; Subsidiary Company.
4. The financial statements shall give a true and fair view of the state of afiairs of the company or companies, comply with the notified accounting standards and shall be in the form or forms as may be provided for difierent class or classes of companies, as prescribed in Schedule III to the Companies Act, 2013. Financial Statements as per Section 2(40) of the Companies Act, 2013, include balance sheet as at the end of the financial year; profit and loss account, or in the case of a company carrying on any activity not for profit, an income and expenditure account for the financial year; cash ow statement for the financial year; statement of changes in equity, if applicable; and any explanatory note annexed to.

TEST YOUR KNOWLEDGE
Ques 1: Which of the following statement is not a feature of a Company?
(a) Separate legal entity
(b) Perpetual Existence
(c) Members have unlimited liability
Ans: (c)

Ques 2: In a Government Company, the holding of the Central Government in paid-up capital should not be less than
(a)  25%
(b)  50 %  
(c) 51%  
Ans: (c)

Ques 3: Which of the following statement is true in case of a Foreign Company?
(a) A Company incorporated in India and has place of business outside India.
(b) A Company incorporated outside India and has a place of business in India.
(c) A Company incorporated in India and has a place of business in India.
Ans: (b)

Ques 4: Which of the following statements is not a feature of a private company?
(a) Restricts the rights of members to transfer its shares.
(b) Does not restrict on the number of its members to any limit.
(c) Does not involve participation of public in general.
Ans: (b)

Theory Questions
1. Explain salient features of a company in brief.
2. Write short note on:
(i) Foreign company.
(ii) Small company.
(iii)  Company limited by guarantee.

Theoretical Question 
1. Refer para 1.3 of this unit for salient features of a company.
2. (i)  Foreign Company 
According to Section 2 (42) of the Companies Act, 2103, “Foreign company” means any company or body corporate incorporated outside India which –
(a)  Has a place of business in India whether by itself or through an agent physically or through electronic mode; and
(b) Conducts any business activity in India in any other manner.
(ii)  Small Company 
Section 2(85) of the Companies Act, 2013 defines “Small company” means a company, other than a public company.
(i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than five crore rupees; or
(ii) turnover of which as per its last profit and loss account does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than twenty crore rupees.
(iii) Company limited by Guarantee 
As per Section 2(21) of the Companies Act, 2013, “company limited by guarantee” means a company having the liability of its members limited by the memorandum to such amount as the members may respectively undertake to contribute to the assets of the company in the event of its being wound up.

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