Financial Statements of a Company Chapter Notes | Accountancy Class 12 - Commerce PDF Download

Financial Statements Of A Company

Financial Statements are the end products of accounting process and are prepared at end of the accounting period to reveal the financial position of the enterprise at a particular date and the result of its business operations preparing an accounting period.

As per Section 2(40) of the Companies Act, 2013 Financial Statements includes:

1.       Balance Sheet or Position Statement

2.       Statement of Profit and Loss or Income Statement

3.       Notes to Accounts.

4.       Cash Flow Statement.

Balance Sheet: It is a statement of assets, liabilities and equities of a business and it is prepared to show the financial position of the company at particular date.

The balance sheet of a company is prepared as per the formal prescribed in part I of Schedule III of the Companies Act, 2013.

The Schedule III prescribes only the vertical format for presentation of financial statements. Thus, a company will now not have an option to use horizontal format for the presentation of financial statements.

At contents of Balance Sheet

An asset is a resource controlled by the enterprise as a result of past events Pam which future economic benefits are expected to flow to the enterprise.

Liabilities is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits.

Equity is the residual interest in the assets of the enterprise after deducting all its liabilities.

Part I - Form of Balance Sheet

1.       EQUITY AND LIABILITIES I. (1) Shareholders’ funds

Under this head, following line items are to be disclosed:

•   Share capital

•   Reserves and surplus

•   Money received against share warrants I. (l)b.Reserves and Surplus

(i)        Reserves and Surplus shall be classified as :

(a)        Capital Reserves;

(b)        Capital Redemption Reserve;

(c)         Securities Premium Reserve;

(d)        Debenture Redemption Reserve;

(e)         Revaluation Reserve;

(f)          Share Options Outstanding Account;

(a)        Other Reserves - (Specify the nature and purpose of each reserve and the amount in respect thereof such as Tax Reserve);

(b)        Surplus i.e. Balance in statement of Profit & Loss.

(c)         Debit balance of Statement of Profit and Loss shall be shown as a negative figure under the head ‘surplus’. Similarly, the balance of ‘Reserves and Surplus’, After adjusting negative balance of surplus, if any, shall be shown under the head ‘Reserves and Surplus’ even if the resulting figure is in the negative.

1.3 Non-current liabilities

A liability shall be classified as non-current if it is not a current liability. The following items shall be disclosed under non-current liabilities.

Long-term borrowings

Deferred tax liabilities (Net)

Other Long term liabilities

Long-term provisions

1.3.            a. Long-term borrowings :

1.3.            a. 1. Long-term borrowings shall be classified as :

(a)        Bonds/debentures;

(b)        Term loans;

From banks;

From other parties;

(c)         Deferred payment liabilities;

(d)        Deposits;

Loans and advances from related parties;

(a)       Long term maturities of finance lease obligations;

(b)       Other loans and advances (Specify nature).

1.3.        c Other Long-term liabilities

This should be classified into :

(a)        Trade payables; (payable after 12 months from date of Balance sheet or after operating cycle); and

(b)        Others.

A payable shall be classified as ‘trade payable’ if it is in respect of amount due on account of goods purchased or services received in the normal course of business operations.

1.3.        c. Long-term Provisions

This amounts shall be classified as :

(a)        Provision for employee benefits. Example: Provision for Provident Fund

(b)        Other (specify nature). Example: Provision for Warranties.

1.4.        Current Liabilities

1.       A liability shall be classified as current when it satisfies any of the following criteria:

(a)        it is expected to be settled in the company’s normal operating cycle; or

(b)        it is held primarily for the purpose of being traded; or

(c)         it is due to be settled within twelve months after the reporting date; or

(d)        the company does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting date. Terms of a liability that could, at the option of the counter party, result in its settlement by the issue of equity instruments do not affect its classification.

An operating cycle is the time between the acquisition of an asset for processing and their realization in cash or cash equivalents. Where the normal operating cycle cannot be 

identified, it is assumed to have a duration of 12 months.

Short-term borrowings Trade payables Other Current liabilities Short-term provisions

1.4.        a. Short-term borrowings

Short-term borrowings are the borrowings which are payable within 12 months from the date of Balance Sheet or within the period of operating cycle. The following items are included in short term borrowings:

(a)        loans repayable on demand;

(b)        Bank overdraft and cash credit limit form banks;

(c)         Loans from other parties repayable within 12 months;

(d)        Deposits; and

(e)         Other loans and advances (Specify nature).

1.4.        c. Other current liabilities The amounts shall be classified as :

(a)        Current maturities of long-term debt;

(b)        Current maturities of finance lease obligations;

(c)         Interest accrued but not due on borrowings;

(d)        Interest accrued and due on borrowings;

(e)         Income received in advance;

Unpaid dividends;

(a)        Application money received for allotment of securities and due for refund and interest accrued thereon;

(b)        Unpaid matured deposits and interest accrued thereon;

(c)         Unpaid matured debentures and interest accrued thereon;

(d)        Calls-in-Advance

(e)         Other payables (specify nature).

I.        4.d. Short-term Provisions

Provisions which are expected to mature within 12 months are classified as short term provisions.

The amounts shall be classified as :

(a)        Provision for employee benefits;

(b)        Others (specify nature).

Others would include Proposed Dividend, Provision for Taxation, Provision for expenses, Warranty Provisions, etc. These amounts should be disclosed separately specifying nature thereof.

II.       Assets

I. Non-Current Assets

(a)        Fixed assets

(i)        Tangible assets

(ii)        Intangible assets

(iii)        Capital work-in-progress

(iv)         Intangible assets under development

Non-current investments

1. d. Cash and Cash Equivalents

As defined in AS-3, Cash flow Statement, cash and cash equivalents are share term highly liquid investments that are readily convertible into known amount cash and which are subject to an insignificant risk of change in value.

1. Cash and cash equivalents shall be classified as :
2. Balances with banks;
3. Cheques, drafts on hand,
4. Cash in hand;
5. Other (specify nature)
6. e. Short-term Loans and Advances
7. Short-term Loans and Advances shall be classified as :
8. Loan and advances to related parties (giving details thereof):
9. Other (specify nature)
10. Allowance for bad and doubtful loans and advances shall be disclosed under the relevant heads separately.
11. e.f. Other Current Assets (specify nature)

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, prepaid expenses, dividend receivable, advance taxes etc.

for example-

(Rs. In.......... )

I.        Revenue from operations

II.         Other Income

III.          Total Revenue (I+II)

IV.       Expenses :

•Cost of Material consumed •Purchases of Stock-in-Trade

•Changes in Inventories of Finished Goods, Work-in­progress and Stock-in-trade •Employees Benefit Expenses •Finance Cost

•Depreciation & Amortisation Expenses •Other Expenses Total Expenses

IV.      Profit before Tax (III-IV)

V.         Less : Tax

VI.         Profit after Tax (V - VI)

CONTENTS OF STATEMENT OF PROFIT AND LOSS

1.       Revenue from Operations : It refers to the revenue earned by the company from its business operations.

Fox example :

(1)        Revenue from sale of products or services

(2)        Revenue from sale of scrap.

2.    Other Income : It refers to the revenue earned by the company from activities other than its business operations.

1. Depreciation and Amortisation expenses : Depreciation is the cost of tangible fixed assets written of over their useful life such as on building, plant & machinery etc.

Amortisation is the cost of intangible fixed assets written off over their useful life such as on patents, trademarks, computer software etc.

1. Other Expenses: Expenses that are not shown in any of the above mentioned heads are shown here.

For example:

1. Carriage Inwards/Outwards
2. Audit Fees
3. Insurance charges
4. Rates & taxes
5. Bank charges
6. Advertisement expenses
7. Administrative expenses

(viii) Selling and distribution expenses

1. Power and electricity expenses]
2. Repairs of Fixed Assets etc.
3. Rent
4. Telephone expenses (xiii) Sundry expenses