Financial Statements of a Company
Format
Schedule III of the Companies Act, 2013 prescribes a vertical format. The Balance Sheet has two sides: Equity and Liabilities (shareholders' funds, non-current liabilities, current liabilities) and Assets (non-current assets, current assets). The Statement of Profit and Loss follows, and Notes to Accounts give the breakup of every line item.
Classification decisions
- Securities premium, general reserve and surplus appear under Reserves and Surplus within Shareholders' Funds.
- Calls in arrears are deducted from subscribed capital.
- Proposed dividend is not recognised as a liability; it is disclosed in the notes.
- Stores and spares, loose tools, prepaid expenses and interest accrued on investments are current assets.
- Outstanding salaries, advances from customers and calls in advance are Other Current Liabilities; provision for tax is shown under Short-term Provisions.
- Deferred tax liability is a non-current liability.
Worked example
Find Other Current Liabilities from: creditors ₹2,40,000; bills payable ₹60,000; outstanding salaries ₹25,000; provision for tax ₹45,000; advance from customers ₹30,000; calls in advance ₹15,000. Creditors and bills payable are Trade Payables (₹3,00,000) and provision for tax is a Short-term Provision. Other Current Liabilities = 25,000 + 30,000 + 15,000 = ₹70,000.
Marks-losing traps
- Showing proposed dividend as a liability.
- Clubbing provisions with other current liabilities.
- Netting accumulated depreciation against the asset instead of disclosing it in the notes.
- Misclassifying a loan repayable within twelve months as non-current.