Final Accounts of Companies | ISC Class 12 Accounts Notes

This note covers the preparation of a company's Balance Sheet (with Notes to Accounts) under Schedule III Part I of the Companies Act, 2013: the vertical format, the major heads and sub-heads for Equity and Liabilities and for Assets, the current/non-current classification rule, the disclosure of Share Capital and Reserves and Surplus, the treatment of Proposed Dividend after the Accounting Standard 4 amendment, the renaming of Fixed Assets to Property, Plant and Equipment under the amended Schedule III, and worked examples of balance sheet preparation.

What are the final accounts of a company?

The final accounts of a company are the formal annual statements through which its management communicates financial information to shareholders, investors, tax authorities, government and employees.

These refer to the balance sheet as at the end of the accounting period, the statement of profit and loss, and the cash flow statement.

For ISC Class 12, the focus is the Balance Sheet prepared along with notes to accounts.

Every company registered under the Companies Act, 2013, must prepare its Balance Sheet, statement of profit and loss and notes to accounts in accordance with the manner prescribed in Schedule III to that Act.

Schedule III Part I deals with the form and content of the Balance Sheet, and it was framed to harmonise the disclosure requirements of company law with the accounting standards.

Definition: Schedule III. The part of the Companies Act, 2013, that prescribes the vertical format, the major heads, sub-heads and disclosure requirements for a company's Balance Sheet, statement of profit and loss and notes to accounts.

Schedule III applies to all Indian companies preparing financial statements under the Act, except an insurance or banking company, or a company for which a separate form of balance sheet or income statement is specified under any other Act.

Accounting standards prevail over Schedule III wherever the two differ, and terms used in the Schedule carry the meaning given to them by the applicable accounting standard.

What is the prescribed format of the Balance Sheet under Schedule III?

Schedule III prescribes a vertical format, not the older horizontal "T" form. The statement is headed "Balance Sheet as at 31st March, 20…", and it has two broad parts: I. Equity and Liabilities and II. Assets.

Each line item carries a Note No. referring to the notes to accounts, and figures are shown for the current reporting period and for the previous reporting period side by side, so that a reader can compare one year with the last.

Draw four columns headed Particulars, Note No., Figure at the end of current reporting period, Figure at the end of previous reporting period. Under "I.

Equity and Liabilities" list Shareholders' Funds, Share Application Money Pending Allotment, Non-current Liabilities and Current Liabilities, each totalled. Under "II. Assets" list Non-current Assets and Current Assets, each totalled, with the grand totals of both parts equal.

Presentation rules that go with the format

Several presentation rules go with this format. Disclosure on the face of the statements or in the notes is mandatory. A balance is to be struck between giving excessive detail, which does not help the reader, and omitting important information.

A debit balance in the statement of profit and loss is disclosed as a negative figure under the head "Surplus". Share application money pending allotment must be disclosed separately.

The older terms "Sundry Debtors" and "Sundry Creditors" are replaced throughout by Trade Receivables and Trade Payables.

Because the two sides of the Balance Sheet must agree, every preparation ends with a check: Total Assets = Total Equity + Liabilities. This means the grand total shown under "I. Equity and Liabilities" must equal the grand total shown under "II. Assets" before the statement can be taken as complete.

The rounding-off rule

Figures must be rounded off according to the size of turnover: a company with turnover below Rs. 100 crore rounds to the nearest hundreds, thousands, lakhs or millions (or a decimal of these), while a company with turnover above Rs. 100 crore rounds to the nearest lakhs, millions or crores (or a decimal of these).

Draw a bar chart with the x-axis showing the two reporting periods, current and previous, and the y-axis showing the amount in Rs. Plot a bar for a chosen major head, such as Shareholders' Funds or Non-current Liabilities, so that a rise or fall between the two periods is visible at a glance, in the same way the Balance Sheet itself sets the two periods side by side.

What are the major heads of Equity and Liabilities?

Under Schedule III, Equity and Liabilities are broken down as follows.

Shareholders' Funds

Shareholders' Funds is the first and most important head. It covers the owners' claim on the company and is sub-classified into Share Capital, Reserves and Surplus, and Money received against share warrants.

Non-current and Current Liabilities

Non-current Liabilities are obligations not expected to be settled within twelve months of the reporting date or the operating cycle, whichever is longer, while Current Liabilities are those expected to be settled within that period.

What are the major heads of Assets?

Non-current Assets

The classification of assets and liabilities into current and non-current categories is a key feature of the revised Schedule III, with non-current treated as the residual class: anything that does not meet the current test is non-current.

Current Assets

Definition: Trade Receivables. Amounts owed to the company for the sale of goods or services rendered in the normal course of business; shown under current assets unless realisable beyond twelve months, in which case they go under "other non-current assets".

How is the current and non-current distinction applied?

An item is classified as current if any one of these applies: it is involved in the entity's operating cycle; it is expected to be realised or settled within twelve months; it is held primarily for trading; it is cash or a cash equivalent; or the entity does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period. All other assets and liabilities are non-current.

Definition: Operating Cycle. The time between the acquisition of assets for processing and their realisation in cash or cash equivalents; used as the alternative test, along with the twelve-month rule, for classifying an item as current.

Applying this rule item by item: borrowings repayable in more than twelve months, or beyond the operating cycle, are long-term borrowings; those repayable on demand, or with an original tenure of not more than twelve months, are short-term borrowings; and the portion of a long-term loan that falls due within the next twelve months is shown as a current maturity under other current liabilities.

Deferred tax assets and deferred tax liabilities are always classified as non-current. Fixed assets, both tangible and intangible, are always non-current, even if the useful life of a particular asset is less than twelve months.

Inventories are always treated as current. Investments are split: those expected to be realised within twelve months are current investments, and the rest are non-current investments, though both are shown on the face of the balance sheet.

1. Check whether the asset or liability is part of the normal operating cycle of the business.
2. If it is not, check whether it will be realised or settled within twelve months of the reporting date.
3. If it is held mainly for trading purposes, or it is cash or a cash equivalent, classify it as current regardless of the time test.
4. For a liability, check further whether the company has an unconditional right to defer its settlement for at least twelve months; if not, treat it as current.
5. If none of these tests is met, classify the item as non-current.

How is Share Capital disclosed in the Notes to Accounts?

Share Capital is shown as a single figure on the face of the Balance Sheet under Shareholders' Funds, with the detail given entirely in the Notes to Accounts. For each class of shares, the notes must disclose:

Disclosures required for each class of shares

1. The number and amount of shares authorised.
2. The number of shares issued, subscribed and fully paid, and subscribed but not fully paid.
3. The par value per share.
4. A reconciliation of the number of shares outstanding at the beginning and end of the accounting period.
5. The rights, preferences and restrictions attaching to each class of shares, including restrictions on dividends and repayment of capital.
6. Shares held by the holding company or ultimate holding company, including those held by its subsidiaries or associates.
7. Shares reserved for issue under options or contracts for sale, with terms and amount.
8. Details, for the five years immediately preceding the balance sheet date, of shares allotted without payment received in cash, bonus shares allotted, and shares bought back.
9. Terms of any securities convertible into equity or preference shares, with the earliest date of conversion.
10. The aggregate amount of calls unpaid and of shares forfeited (amount originally paid up).

Net share capital and worked examples

Putting the last two items together gives the adjustment shown in the notes: Net Share Capital = Called-up − Calls-in-arrears + Forfeiture. The called-up capital is reduced by calls-in-arrears not yet received from shareholders, and increased by the amount already paid up and retained on shares forfeited and not yet reissued.

Note: Calls-in-arrears. Calls made by the company but not yet received from shareholders on their shares. In the notes to accounts, calls-in-arrears are deducted from the share capital called up to arrive at the amount actually collected.

Worked example 1. Dinkar Ltd. has an authorised capital of Rs. 50,00,000 divided into equity shares of Rs. 100 each. It invited applications for 40,000 shares; applications for 36,000 shares were received.

All calls were made and duly received except for 500 shares on which the final call of Rs. 20 was not received. The company forfeited 200 of these shares.

Show how Share Capital appears in the balance sheet and prepare the Notes to Accounts.

Answer: Authorised capital: 50,000 equity shares of Rs. 100 each = Rs. 50,00,000. Issued capital: 40,000 shares of Rs. 100 each = Rs. 40,00,000. Subscribed and fully paid: 35,500 shares of Rs. 100 each = Rs. 35,50,000.

Subscribed but not fully paid: 300 shares of Rs. 100 each fully called = Rs. 30,000, less calls-in-arrears (300 × Rs. 20) = Rs. 6,000, giving Rs. 24,000.

Add Share Forfeiture Account (200 shares × Rs. 80 paid up) = Rs. 16,000, giving Rs. 40,000. Total Share Capital shown in the Balance Sheet = Rs. 35,50,000 + Rs. 40,000 = Rs. 35,90,000.

Worked example 2. Sunfill Ltd. has a General Reserve of Rs. 5,00,000 (since 31 March 2012) and a debit balance of Rs. 3,00,000 in its statement of profit and loss for 2016-17. Show Reserves and Surplus in the Balance Sheet as at 31 March, 2017.

Answer: General Reserve Rs. 5,00,000, less Statement of Profit and Loss (debit balance) Rs. 3,00,000, gives Reserves and Surplus of Rs. 2,00,000 shown under Shareholders' Funds.

How are Reserves and Surplus classified?

Classification of reserves

Disclosure rules for Reserves and Surplus

Two disclosure rules matter here. First, a debit balance in the statement of profit and loss is shown as a negative figure under "Surplus"; if this negative Surplus more than wipes out the other reserves, the whole "Reserves and Surplus" head is still shown, even if the resulting total figure is itself negative.

Second, a reserve that is specifically represented by earmarked investments is termed a "Fund" rather than a reserve. For employee share-based payment schemes, the Institute of Chartered Accountants of India's Guidance Note on Accounting for Employee Share-based Payments requires a credit balance in the "Share Options Outstanding Account" to be shown as a separate item between Share Capital and Reserves and Surplus, within Shareholders' Funds.

Movement in Reserves and Surplus from one year to the next can be summarised as Closing Reserves = Opening Reserves ± Surplus. Opening reserves, such as a General Reserve brought forward, are adjusted by the Surplus carried over from the statement of profit and loss, shown as a negative figure if it is a debit balance.

How is Proposed Dividend treated under the amended Accounting Standard 4?

Proposed dividend is recommended by the Board of Directors after the annual accounts for a year have been prepared, but it is only declared (approved) by the shareholders at the Annual General Meeting, which is held in the next financial year.

Shareholders may reduce the amount of dividend proposed by the directors, but they cannot increase it.

Definition: Contingent Liability. A possible obligation that depends on the occurrence or non-occurrence of a future, uncertain event not wholly within the entity's control, and that is therefore disclosed in the notes to accounts rather than recognised as a liability in the Balance Sheet.

Because declaration of the proposed (final) dividend is contingent on shareholder approval, the amended Accounting Standard 4 provides that dividend proposed for a year is not a liability until the shareholders have approved it.

Proposed dividend is therefore not shown as a short-term provision in the current year's Balance Sheet; instead, it is disclosed in the Notes to Accounts under Contingent Liabilities.

In the following year, once the shareholders have declared (approved) the previous year's proposed dividend at the Annual General Meeting, it becomes an actual liability and is accounted for in the books for that year.

Proposed dividend for the current year, in turn, becomes relevant only for the next financial year's accounts, following the same cycle.

What changed in Property, Plant and Equipment under the amended Schedule III?

From "Fixed Assets" to "Property, Plant and Equipment"

Under the amendment to Schedule III of the Companies Act, 2013, the sub-head "Fixed Assets" under Non-current Assets is replaced with "Property, Plant and Equipment and Intangible Assets", and within that, "Tangible Assets" is replaced with "Property, Plant and Equipment".

A student preparing a Balance Sheet for the current syllabus should therefore show the non-current asset sub-heads as Property, Plant and Equipment, Intangible Assets, Capital Work-in-Progress and Intangible Assets under Development, rather than the older "Tangible Assets" and "Intangible Assets" wording.

What stays the same

The underlying treatment is otherwise unchanged: both tangible and intangible fixed assets remain non-current, regardless of how short their remaining useful life is.

So if a company owns machinery, land and buildings, or vehicles that it expects to use for less than twelve months, these are still shown as non-current assets, and not reclassified as current merely because their remaining useful life has fallen below a year. The same non-current treatment applies to intangible assets such as goodwill, patents and trademarks, and to capital work-in-progress and intangible assets under development. Only the heading used on the face of the Balance Sheet, and in the Notes to Accounts, changes to reflect the amended terminology; the figures a student carries from the trial balance into the Property, Plant and Equipment note follow exactly the same rule as before the amendment.

How are Borrowings, Trade Payables and Provisions classified?

Borrowings

Total borrowings are categorised into long-term borrowings, short-term borrowings, and current maturities of long-term debt, following the twelve-month and operating-cycle tests described earlier.

Trade payables and provisions

Trade payables, the renamed "sundry creditors", are classified as current or non-current: amounts to be settled beyond twelve months from the balance sheet date, or beyond the operating cycle, are shown under "other long-term liabilities" with a note, while the balance is shown as current liabilities on the face of the Balance Sheet.

Provisions follow the same logic. A provision expected to be settled within twelve months of the balance sheet date, or within the operating cycle from the date it was recognised, is a short-term provision shown under Current Liabilities; all other provisions are long-term provisions shown under Non-current Liabilities.

Share warrants and cash equivalents

Money received against share warrants is the amount received for instruments that convert into shares at a specified future date and rate; it is disclosed as a separate line item under Shareholders' Funds.

The note on "Cash and cash equivalents" is built from a simple sum: Cash and cash equivalents = Cash in hand + Bank balance, as applied in the worked examples below.

Draw a bar chart with the x-axis showing three categories, long-term borrowings, short-term borrowings and current maturities of long-term debt, and the y-axis showing the amount in Rs. The height of each bar shows how much of total borrowings falls into that category for a given company, reflecting the twelve-month and operating-cycle tests used to classify each loan.

Worked example 3. Show the following items in the Balance Sheet of Amba Ltd. as on 31 March, 2017: 8% Debentures Rs. 10,00,000; Equity share capital Rs. 50,00,000; Securities premium Rs. 20,000; Preliminary expenses Rs. 40,000;

Statement of Profit and Loss (credit) Rs. 1,50,000; Loose tools Rs. 20,000; Bank balance Rs. 60,000; Cash in hand Rs. 38,000.

Answer: Share capital Rs. 50,00,000. Reserves and Surplus: Securities premium Rs. 20,000, less Preliminary expenses Rs. 40,000, gives a negative Rs. 20,000; add Statement of Profit and Loss Rs. 1,50,000, gives Reserves and Surplus of Rs. 1,30,000.

Long-term borrowings: 8% Debentures Rs. 10,00,000. Inventories: Loose tools Rs. 20,000. Cash and cash equivalents: Bank balance Rs. 60,000 + Cash in hand Rs. 38,000 = Rs. 98,000.

How do you prepare a full Balance Sheet with Notes to Accounts?

Putting the heads together, preparation proceeds in a fixed order.

Steps in preparation

1. List every balance given and decide its major head (Shareholders' Funds, Non-current Liabilities, Current Liabilities, Non-current Assets or Current Assets) using the current/non-current tests.
2. Group items of the same major head together and give each group a Note number.
3. Prepare the detailed Notes to Accounts for each numbered group, showing sub-totals.
4. Carry the totals of each Note into the vertical Balance Sheet against the correct major head.
5. Check that the grand total of "I. Equity and Liabilities" equals the grand total of "II. Assets".

A full worked illustration

Worked example 4. From the following particulars of Shine and Bright Co. Ltd. as at 31 March, 2017, prepare the Balance Sheet: Equity share capital Rs. 6,96,000; Goodwill Rs. 30,000; 10% Debentures Rs. 2,00,000; Loose Tools Rs. 12,000;

Stock in trade Rs. 1,40,000; Motor vehicles Rs. 4,75,000; Cash at bank Rs. 1,35,000; Provision for tax Rs. 16,000; Bills receivable Rs. 1,20,000.

Answer: Shareholders' funds, share capital: Equity share capital Rs. 6,96,000. Non-current liabilities, long-term borrowings: 10% Debentures Rs. 2,00,000. Current liabilities, short-term provisions: Provision for taxation Rs. 16,000. Total equity and liabilities: Rs. 9,12,000.

Non-current assets, Property, Plant and Equipment: Motor vehicles Rs. 4,75,000; Intangible assets: Goodwill Rs. 30,000. Current assets, Inventories: Stock in trade Rs. 1,40,000 + Loose tools Rs. 12,000 = Rs. 1,52,000;

Trade receivables: Bills receivable Rs. 1,20,000. Cash and cash equivalents: Cash at bank Rs. 1,35,000. Total assets: Rs. 9,12,000, equal to total equity and liabilities.

Preliminary expenses never appear as an asset: they are written off in the year they are incurred, first from securities premium and then from the statement of profit and loss.

What are the uses and importance of financial statements?

Financial statements serve several purposes for the many parties who rely on them, which include management, investors, shareholders, creditors, government, bankers, employees and the public.

• They report on the stewardship function of management, letting shareholders compare performance with expectations.
• They form the basis for fiscal policies, since taxation and other government policy decisions rest on reported corporate performance.
• They are the basis for granting credit, as banks and financial institutions judge borrowers from their financial statements.
• They help prospective investors assess the security, liquidity and profitability of a possible investment.
• They are a guide to the value of investment already made, helping existing shareholders decide whether to continue or discontinue holding shares.
• They aid trade associations in developing standard ratios and uniform systems of accounts for their members.
• They help stock exchanges judge the transparency of reporting and protect investor interests.

What are the limitations of financial statements?

Even though prepared with care, financial statements have several limitations.

• They do not reflect the current situation, being based on historical cost rather than current market values.
• Assets may not realise their stated book value if the company is forced into liquidation.
• They may show bias, since recorded facts, accounting conventions and personal judgements all influence the figures.
• They give only aggregate information, not the detailed information a user may actually need.
• Vital information is missing, such as the loss of a major market or the ending of an important agreement.
• They give no qualitative information about matters such as industrial relations or the quality of work.
• They are only interim reports: the statement of profit and loss covers one period, and the balance sheet is true only at one point in time.

Going beyond the syllabus

Although the examinable unit is confined to the Balance Sheet under Schedule III Part I, it helps to remember that the statement of profit and loss (Schedule III Part II) feeds into the "Surplus" figure carried into the Balance Sheet's Reserves and Surplus note, since the profit or loss of the year, after any dividend and transfers, becomes part of that balance.

Students should also note that the disclosures on share capital described here, such as calls-in-arrears and forfeited shares, are carried forward from the share capital transactions studied earlier in the course.

In India, the Ministry of Corporate Affairs, Government of India, administers the Companies Act, 2013, and it is this Ministry that notifies amendments to Schedule III from time to time, including the two amendments to proposed dividend and to Fixed Assets described above. A listed Indian company must also comply with the disclosure requirements of the Securities and Exchange Board of India in addition to Schedule III, though the Balance Sheet format itself remains the one laid down under the Companies Act.

It is also worth noting that the Institute of Chartered Accountants of India issues Guidance Notes, such as the one on employee share-based payments referred to above, which supplement the bare wording of Schedule III and help accountants apply it consistently across Indian companies of different sizes and industries.

Glossary

• Schedule III — the part of the Companies Act, 2013, prescribing the format and disclosures of a company's financial statements.
• Shareholders' Funds — the owners' claim on the company, comprising Share Capital, Reserves and Surplus, and share warrant money.
• Trade Payables — amounts owed by the company for goods or services bought in the normal course of business, replacing "sundry creditors".
• Trade Receivables — amounts owed to the company for goods sold or services rendered, replacing "sundry debtors".
• Calls-in-Arrears — calls made by the company on shares but not yet received from shareholders.
• Proposed Dividend — dividend recommended by the directors but not yet approved by shareholders; shown only in the notes as a contingent liability.
• Contingent Liability — a possible obligation dependent on a future uncertain event, disclosed in notes rather than recognised in the Balance Sheet.
• Operating Cycle — the time from acquiring assets for processing to realising them in cash or cash equivalents.
• Property, Plant and Equipment — the amended Schedule III term for what was previously called "Tangible Assets" under Fixed Assets.
• Securities Premium Reserve — the premium received by a company on the issue of shares or debentures above their face value.
• Debenture Redemption Reserve — a reserve set aside out of profits to provide for redemption of debentures.
• Notes to Accounts — detailed schedules accompanying the Balance Sheet, giving the break-up behind each summarised figure.
• Money Received Against Warrants — amounts received for instruments convertible into shares at a future date and price.
• Short-term Provisions — provisions expected to be settled within twelve months or the operating cycle, shown under Current Liabilities.

Common errors and misconceptions

• Misconception: Proposed dividend for the year is shown as a short-term provision in the current year's Balance Sheet. Correct: After the AS-4 amendment, proposed dividend not yet approved by shareholders is disclosed only in Notes to Accounts under Contingent Liabilities.
• Misconception: Fixed assets with a short remaining useful life can be shown as current assets. Correct: Both tangible and intangible fixed assets are always classified as non-current, whatever their remaining useful life.
• Misconception: Inventories can be classified as non-current if they are expected to be sold after twelve months. Correct: Inventories are always treated as current under Schedule III.
• Misconception: A debit balance in the statement of profit and loss is simply omitted from Reserves and Surplus. Correct: It is shown as a negative figure under "Surplus", and the whole Reserves and Surplus head is disclosed even if the net figure is negative.
• Misconception: "Sundry Debtors" and "Sundry Creditors" are still the correct Schedule III terms. Correct: These are replaced by "Trade Receivables" and "Trade Payables" respectively.
• Misconception: Calls-in-arrears are added to share capital. Correct: Calls-in-arrears are deducted from the called-up capital to arrive at the amount actually received.
• Misconception: Deferred tax assets or liabilities can be shown as current if they are expected to reverse within a year. Correct: Deferred tax assets and liabilities are always classified as non-current under Schedule III.

Exam-style questions with model answers

Q1. State the rule for classifying inventories as current or non-current assets under Schedule III. [1 mark]

1. Inventories are always classified as current assets under Schedule III, regardless of how long they are expected to be held before sale.

Q2. A company's statement of profit and loss shows a debit balance for the year. State how this is disclosed in the Balance Sheet. [2 marks]

1. The debit balance is shown as a negative figure under the head "Surplus" within Reserves and Surplus.
2. If this negative balance exceeds the other reserves, the Reserves and Surplus head is still disclosed, even though the resulting total is negative.

Q3. Zee Ltd. proposed a dividend of Rs. 2,00,000 for the year ended 31 March, 2025, which the Board recommended but which the shareholders had not yet approved at the date the accounts were finalised. Explain how this proposed dividend should be shown in the Balance Sheet as at 31 March, 2025. [4 marks]

1. Under the amended Accounting Standard 4, a dividend proposed for a year is not a liability until it has been approved by the shareholders.
2. The Board of Directors recommends the dividend after the accounts for the year are prepared, but approval comes only at the Annual General Meeting, held in the next financial year.
3. Zee Ltd. must therefore not show the Rs. 2,00,000 proposed dividend as a short-term provision in the Balance Sheet as at 31 March, 2025.
4. Instead, it must be disclosed in the Notes to Accounts under Contingent Liabilities, becoming an actual liability only in the year it is approved by the shareholders.

Q4. From the following balances of Hari Ltd. as at 31 March, 2025, show the figure for Reserves and Surplus in the Balance Sheet: General Reserve (since 31 March, 2020) Rs. 6,00,000; Statement of Profit and Loss (debit balance) for 2024-25 Rs. 2,50,000. [3 marks]

1. General Reserve brought forward is Rs. 6,00,000.
2. The debit balance in the statement of profit and loss, Rs. 2,50,000, is deducted from this, as it is shown as a negative "Surplus".
3. Reserves and Surplus shown in the Balance Sheet as at 31 March, 2025 = Rs. 6,00,000 − Rs. 2,50,000 = Rs. 3,50,000.

Q5. Explain the amendment made to the disclosure of Fixed Assets under Schedule III of the Companies Act, 2013. [4 marks]

1. Before the amendment, Non-current Assets under Schedule III were shown with the sub-head "Fixed Assets", further split into "Tangible Assets" and "Intangible Assets".
2. The amended Schedule III replaces the sub-head "Fixed Assets" with "Property, Plant and Equipment and Intangible Assets".
3. Within this, "Tangible Assets" is specifically replaced by the term "Property, Plant and Equipment".
4. The underlying accounting treatment is unchanged: these items remain non-current assets, whatever their remaining useful life.

Q6. Distinguish between a short-term provision and a long-term provision, giving the test used to classify each. [3 marks]

1. A short-term provision is one expected to be settled within twelve months of the balance sheet date, or within the operating cycle from the date it was recognised, and is shown under Current Liabilities.
2. A long-term provision is any provision that does not meet this test and is shown under Non-current Liabilities.
3. Both are, however, estimates based on personal judgement, unlike fixed liabilities of a known amount.

Q7. Kiran Ltd. has the following balances as at 31 March, 2025: Equity Share Capital Rs. 5,25,000; 10% Debentures Rs. 3,00,000; Provision for Taxation Rs. 25,000; Goodwill Rs. 50,000; Loose Tools Rs. 18,000; Cash at Bank Rs. 1,10,000; Bills Receivable Rs. 22,000; Motor Vehicles Rs. 6,50,000. Prepare the Balance Sheet (main statement only; the detailed Notes to Accounts need not be shown). [6 marks]

1. I. Equity and Liabilities, Shareholders' Funds: Share Capital, Equity Share Capital Rs. 5,25,000.
2. Non-current Liabilities: Long-term borrowings, 10% Debentures Rs. 3,00,000.
3. Current Liabilities: Short-term provisions, Provision for Taxation Rs. 25,000; total Equity and Liabilities = Rs. 5,25,000 + Rs. 3,00,000 + Rs. 25,000 = Rs. 8,50,000.
4. II. Assets, Non-current Assets: Property, Plant and Equipment, Motor Vehicles Rs. 6,50,000; Intangible Assets, Goodwill Rs. 50,000.
5. Current Assets: Inventories, Loose Tools Rs. 18,000; Trade Receivables, Bills Receivable Rs. 22,000; Cash and Cash Equivalents, Cash at Bank Rs. 1,10,000.
6. Total Assets = Rs. 8,50,000, equal to total Equity and Liabilities, so the Balance Sheet balances; each figure sits under its correct Schedule III head.

Key takeaways

• A company's Balance Sheet under Schedule III Part I follows a vertical format with Equity and Liabilities and Assets as the two main parts.
• Major heads are Shareholders' Funds, Share Application Money Pending Allotment, Non-current Liabilities and Current Liabilities on one side, and Non-current and Current Assets on the other.
• An item is current if it is part of the operating cycle, realisable within twelve months, held for trading, cash, or a liability without an unconditional right of deferral beyond twelve months.
• Proposed dividend not yet approved by shareholders is, after the AS-4 amendment, disclosed only as a Contingent Liability in the Notes to Accounts.
• Fixed Assets are renamed, under the amended Schedule III, as Property, Plant and Equipment and Intangible Assets, with Tangible Assets becoming Property, Plant and Equipment.
• A debit balance of the statement of profit and loss is shown as a negative figure under "Surplus" within Reserves and Surplus.
• Sundry debtors and sundry creditors are now called Trade Receivables and Trade Payables respectively.
• Inventories, cash and cash equivalents, and deferred tax items each follow a fixed classification rule regardless of amount or time left.

Test yourself

Under which major head is "Securities Premium Reserve" shown in a company's Balance Sheet?

Under Shareholders' Funds, as part of Reserves and Surplus.

Why is proposed dividend not shown as a short-term provision in the current year's Balance Sheet?

Because it is not approved by shareholders until the next Annual General Meeting, so it is not yet a liability; it is disclosed only as a Contingent Liability in the Notes to Accounts.

How are calls-in-arrears treated when disclosing share capital?

They are deducted from the called-up capital in the Notes to Accounts, so that the share capital figure reflects only the amount actually received.

What replaced "Tangible Assets" under the amended Schedule III?

"Tangible Assets" is replaced by "Property, Plant and Equipment", and "Fixed Assets" by "Property, Plant and Equipment and Intangible Assets".

Are inventories ever shown as non-current assets?

No, inventories are always treated as current assets under Schedule III, irrespective of how long they are expected to be held.

What two tests decide whether a loan is a long-term or short-term borrowing?

If repayable in more than twelve months or beyond the operating cycle, it is long-term; if repayable on demand or within twelve months, it is short-term.

What is shown as "Trade Payables" on a company's Balance Sheet?

Amounts owed by the company for goods and services bought in the normal course of business, formerly called sundry creditors, split between current and non-current.