Financial Statements of a Company - Preparation and Presentation
Financial Statements of a Company tests the Schedule III format and the classification rules for the Statement of Profit and Loss and Balance Sheet. The exam expects correct headings, sub-headings and notes rather than a trial-balance dump.
Statement of Profit and Loss
Revenue from operations (sales less returns, services); other income; total income. Expenses: cost of materials consumed, purchases, changes in inventories, employee benefit expense, finance cost, depreciation and amortisation, other expenses. Profit before tax, tax expense, profit after tax. Finance cost is shown separately and is not part of operating expenses.
Balance Sheet
Equity and Liabilities: shareholders' funds (share capital, reserves and surplus, money received against share warrants); share application money pending allotment; non-current liabilities (long-term borrowings, deferred tax, long-term provisions); current liabilities (short-term borrowings, trade payables, other current liabilities, short-term provisions). Assets: non-current assets (property, plant and equipment, intangible assets, non-current investments, long-term loans and advances); current assets (inventories, trade receivables, cash and cash equivalents, short-term loans and advances). Current/non-current is based on the 12-month operating cycle.
Worked example
Sales ₹20,00,000; sales returns ₹50,000; other income ₹30,000; cost of materials ₹9,00,000; employee benefits ₹3,00,000; depreciation ₹1,00,000; finance cost ₹50,000; tax 30%. Revenue from operations = ₹19,50,000; total income = ₹19,80,000; expenses = ₹13,50,000; PBT = ₹6,30,000; tax = ₹1,89,000; PAT = ₹4,41,000. Sales returns are deducted from revenue, not shown as an expense.
Traps
Do not include finance cost in "other expenses". Do not net other income against expenses. Show calls in arrears as a deduction from share capital. Classify proposed dividend correctly under current liabilities/provisions as applicable. Use the 12-month operating cycle for current assets and liabilities.