Financial Statement of Companies

Chapter 4
Financial Statements of Companies
UNIT 1: Preparation of Financial Statements

Question 1
In the financial statements of the financial year 20X1-20X2, Alpha Ltd. has mentioned in the notes to
accounts that during financial year, 24,000 equity shares of ` 10 each were issued as fully paid bonus shares.
However, the source from which these bonus shares were issued has not been disclosed. Is such non-
disclosure a violation of the Schedule III to the Companies Act? Comment.
(Study Material)
Answer
Schedule III has come into force for the Balance Sheet and Profit and Loss Account prepared for the financial
year commencing on or after 1st April, 20X1. As per Part I of the Schedule III, a company should, inter alia,
disclose in notes to accounts for the period of 5 years immediately preceding the balance sheet date (31st
March, 20X2 in the instant case) the aggregate number and class of shares allotted as fully paid-up bonus
shares. Schedule III does not require a company to disclose the source from which bonus shares have been
issued. Therefore, non-disclosure of source from which bonus shares have been issued does not violate the
Schedule III to the Companies Act.
  
Question 2
The management of Loyal Ltd. contends that the work in process is not valued since it is difficult to ascertain
the same in view of the multiple processes involved. They opine that the value of opening and closing work in
process would be more or less the same. Accordingly, the management had not separately disclosed work in
process in its financial statements. Comment in line with Schedule III.
(Study Material)
Answer
Schedule III to the companies Act does not require that the amounts of WIP at the beginning and at the end
of the accounting period to be disclosed in the statement of profit and loss. Only changes in inventories of
WIP need to be disclosed in the statement of profit and loss. Non-disclosure of such change in the statement
of profit and loss by the company may not amount to violation of Schedule III if the differences between
opening and closing WIP are not material.
  
Question 3
Futura Ltd. had the following items under the head “Reserves and Surplus” in the
Balance Sheet as on 31st March, 20X1:
Amount` in lakhs
Securities Premium Account 80
Capital Reserve 60
General Reserve 90
The company had an accumulated loss of ` 250 lakhs on the same date, which it has disclosed under the
head “Statement of Profit and Loss” as asset in its Balance Sheet. Comment on accuracy of this treatment in
line with Schedule III to the Companies Act, 2013.
(Study Material)
2 Chap. 4  Financial Statements of Companies
Answer
Part I of Schedule III to the Companies Act, 2013 provides that debit balance of Statement of Profit and Loss
(after all allocations and appropriations) should be shown as a negative figure under the head ‘Surplus’.
Similarly, the balance of ‘Reserves and Surplus’, after adjusting negative balance of surplus, should be shown
under the head ‘Reserves and Surplus’ even if the resulting figure is in the negative. In this case, the debit
balance of profit and loss i.e. ` 250 lakhs exceeds the total of all the reserves i.e. ` 230 lakhs. Therefore,
balance of ‘Reserves and Surplus’ after adjusting debit balance of profit and loss is negative by ` 20 lakhs,
which should be disclosed on the face of the balance sheet. Thus the treatment done by the company is
incorrect.
  
Question 4
Sumedha Ltd. took a loan from bank for ` 10,00,000 to be settled within 5 years in 10 equal half yearly
instalments with interest. First instalment is due on 30.09.20X1 of ` 1,00,000. Determine how the loan will be
classified in preparation of Financial Statements of Sumedha Ltd. for the year ended 31st March, 20X1
according to Schedule III.
(Study Material)
Answer
As per Schedule III, a liability should be classified as current when it satisfies any of the following criteria:
(i) it is expected to be settled in the company’s normal operating cycle;
(ii) it is held primarily for the purpose of being traded;
(iii) it is due to be settled within twelve months after the reporting date; or
(iv) the company does not have an unconditional right to defer settlement of the liability for at least twelve
months after the reporting date.
In the given case, instalments due on 30.09.20X1 and 31.03.20X2 will be shown under the head ‘other
current liabilities’ as per criteria (c). Therefore, in the balance sheet as on 31.3.20X1, ` 8,00,000 (` 1,00,000 x
8 instalments) will be shown under the heading ‘Long term Borrowings’ and ` 2,00,000 (` 1,00,000 x 2
instalments) will be shown under the heading ‘Other Current Liabilities’ as current maturities of loan from
bank.
  
Question 5
The following extract of Balance Sheet of X Ltd. was obtained:
Balance Sheet (Extract) as at 31st March, 20X1
Liabilities `
Authorised capital:
20,000, 14% preference shares of ` 100 20,00,000
2,00,000 Equity shares of ` 100 each 2,00,00,000
Issued and subscribed capital: 2,20,00,000
15,000, 14% preference shares of ` 100 each fully paid 15,00,000
1,20,000 Equity shares of ` 100 each, ` 80 paid-up 96,00,000
Share suspense account 20,00,000
Reserves and surplus:
Capital reserves (` 1,50,000 is revaluation reserve) 1,95,000
Securities premium 50,000
Secured loans:
15% Debentures 65,00,000
Unsecured loans:
Public deposits 3,70,000
UNIT 1: Preparation of Financial Statements 3
Liabilities `
Cash credit loan from SBI (short term) 4,65,000
Current Liabilities:
Trade Payables 3,45,000
Assets:
Investment in shares, debentures, etc. 75,00,000
Profit and Loss account (Dr. balance) 15,25,000
Share suspense account represents application money received on shares, the allotment of which is not yet
made.
You are required to compute effective capital as per the provisions of Schedule V. Would your answer differ if
X Ltd. is an investment company?
(Study Material)
Answer
Computation of effective capital:
Where X Ltd. Is a non- Where X Ltd. is an
investment company investment company
` `
Paid-up share capital—
15,000, 14% Preference shares 15,00,000 15,00,000
1,20,000 Equity shares 96,00,000 96,00,000
Capital reserves (1,95,000 – 1,50,000) 45,000 45,000
Securities premium 50,000 50,000
15% Debentures 65,00,000 65,00,000
Public Deposits 3,70,000 3,70,000
(A) 1,80,65,000 1,80,65,000
Investments 75,00,000 —
Profit and Loss account (Dr. balance) 15,25,000 15,25,000
(B) 90,25,000 15,25,000
Effective capital (A–B) 90,40,000 1,65,40,000
  
Question 6
Kumar Ltd., a non-investment company has been incurring losses for the past few years. The company
provides the following information for the current year:
(` in lakhs)
Paid up equity share capital 120
Paid up Preference share capital 20
Reserves (including Revaluation reserve ` 10 lakhs) 150
Securities premium 40
Long term loans 40
Deposits repayable after one year 20
Application money pending allotment 720
(` in lakhs)
Accumulated losses not written off 20
Investments 180
Kumar Ltd. has only one whole-time director, Mr. X. You are required to calculate the amount of maximum
remuneration that can be paid to him if no special resolution is passed at the general meeting of the company
in respect of payment of remuneration for a period not exceeding three years.
(Study Material)
Answer
Calculation of effective capital and maximum amount of monthly remuneration
(` in lakhs)
Paid up equity share capital 120
Paid up Preference share capital 20
Reserve excluding Revaluation reserve (150- 10) 140
Securities premium 40
Long term loans 40
Deposits repayable after one year 20
380
Less: Accumulated losses not written off (20)
Investments (180)
Effective capital for the purpose of managerial remuneration 180
Since Kumar Ltd. is incurring losses and no special resolution has been passed by the company for payment
of remuneration, managerial remuneration will be calculated on the basis of effective capital of the company,
therefore maximum remuneration payable to the Managing Director should be @ ` 60,00,000 per annum.
Note: Revaluation reserve, and application money pending allotment are not included while computing
effective capital of Kumar Ltd.
  
Question 7
Mudra Ltd. gives the following information the year ended 31st March, 20X1:
`
Gross profit 40,25,365
Subsidies received from Govt. 2,73,925
Administrative, Selling and distribution expenses 8,22,542
Directors’ fees 1,34,780
Interest on debentures 31,240
Managerial remuneration 2,85,350
Depreciation on Property, plant and equipment (PPE) 5,22,543
Provision for Taxation 12,42,500
Transfer to General Reserve 4,00,000
Transfer to Investment Revaluation Reserve 12,500
Depreciation on PPE as per Schedule II of the Companies Act, 2013 was ` 5,75,345. You are required to
calculate the maximum limits of the managerial remuneration as per Companies Act, 2013.
(Study Material)
Answer
Calculation of net profit u/s 198 of the Companies Act, 2013
` `
Gross profit 40,25,365
Add: Subsidies received from Government 2,73,925
42,99,290
Less: Administrative, selling and distribution expenses 8,22,542
Director’s fees 1,34,780

Interest on debentures 31,240
Depreciation on PPE as per Schedule II 5,75,345 (15,63,907)
Profit u/s 198 27,35,383
Maximum Managerial remuneration under Companies Act, 2013= 11% of ` 27,35,383= ` 3,00,892
  
Question 8
Due to inadequacy of profits during the year ended 31st March, 20X2, XYZ Ltd. proposes to declare 10%
dividend out of general reserves. From the following particulars, ascertain the amount that can be utilised
from general reserves, according to the Companies (Declaration of dividend out of Reserves) Rules, 2014:
`
17,500 9% Preference shares of ` 100 each, fully paid up 17,50,000
8,00,000 Equity shares of ` 10 each, fully paid up 80,00,000
General Reserves as on 1.4.20X1 25,00,000
Capital Reserves as on 1.4.20X1 3,00,000
Revaluation Reserves as on 1.4.20X1 3,50,000
Net profit for the year ended 31st March, 20X2 3,00,000
Average rate of dividend during the last three years has been 12%.
(Study Material)
Answer
Amount that can be drawn from reserves for 10% dividend
10% dividend on ` 80,00,000 ` 8,00,000
Profits available
Current year profit 3,00,000
Less: Preference dividend (1,57,500) (1,42,500)
Amount which can be utilised from reserves 6,57,500
Conditions as per Companies (Declaration of dividend out of Reserves) Rules, 20X1:
Condition I
Since 10% is lower than the average rate of dividend (12%), 10% dividend can be declared.
Condition II
Maximum amount that can be drawn from the accumulated profits and reserves should not exceed 10% of
paid up capital plus free reserves ie. ` 12,25,000 [10% of (80,00,000+17,50,000+25,00,000)]
Condition III
The balance of reserves after drawl ` 18,42,500 (` 25,00,000 - ` 6,57,500) should not fall below 15 % of its
paid up capital ie. ` 14,62,500 (15% of ` 97,50,000]
Since all the three conditions are satisfied, the company can withdraw ` 6,57,500 from accumulated reserves
(as per Declaration and Payment of Dividend Rules, 2014.)
  
Question 9
The following is the Trial Balance of Omega Limited as on 31.3.20X2:
(Figures in` ‘000)
Debit Credit
Land at cost 220 Equity Capital (Shares of ` 10 each) 300
Plant & Machinery at cost 770 10% Debentures 200
Trade Receivables 96 General Reserve 130
Inventories (31.3.X2) 86 Profit & Loss A/c 72
Bank 20 Securities Premium 40
Adjusted Purchases 320 Sales 700
Factory Expenses 60 Trade Payables 52
Administration Expenses 30 Provision for Depreciation 172
Selling Expenses 30 Suspense Account 4
Debenture Interest 20
Interim Dividend Paid 18
1670 1670
Additional Information:
(i) The authorised share capital of the company is 40,000 shares of ` 10 each.
(ii) The company on the advice of independent valuer wish to revalue the land at ` 3,60,000.
(iii) Declared final dividend @ 10% on 2nd April, 20X2.
(iv) Suspense account of ` 4,000 represents cash received for the sale of some of the machinery on
1.4.20X1. The cost of the machinery was ` 10,000 and the accumulated depreciation thereon being `
8,000.
(v) Depreciation is to be provided on plant and machinery at 10% on cost.
You are required to prepare Omega Limited’s Balance Sheet as on 31.3.20X2 and Statement of Profit and
Loss with notes to accounts for the year ended 31.3.20X2 as per Schedule III. Ignore previous years’ figures
& taxation.
(Study Material)
Answer
Omega Limited
Balance Sheet as at 31st March, 20X2
Particulars Note No. (` in 000)
Equity and Liabilities
1. Shareholders' funds
(a) Share capital 1 300
(b) Reserves and Surplus 2 530
2. Non-Current liabilities
(a) Long term borrowings 3 200
3. Current liabilities
(a) Trade Payables 52
Total 1082
Assets
1. Non-current assets
A PPE (Property, Plant & Equipment) 4 880
2. Current assets
A Inventories 86
B Trade receivables 96
C Cash and bank balances 20
Total 1082
Omega Limited
Statement of Profit and Loss for the year ended 31st March, 20X2
Particulars Notes (` in 000)
I. Revenue from operations 700
II. Other Income 5 2
III Total Revenue 702
IV Expenses:
Purchases 320
Finance costs 6 20

Depreciation (10% of 760) 76
Other expenses 7 120
Total Expenses 536
V. Profit (Loss) for the period (III – IV) 166
Notes to accounts
(` in 000)
1. Share Capital
Equity share capital
Authorised
40,000 shares of ` 10 each 400
Issued & subscribed & called up

30,000 shares of ` 10 each 300
2. Reserves and Surplus
Securities Premium Account 40
Revaluation reserve (360 – 220) 140
General reserve 130
Profit & loss Balance
Opening balance 72
Profit for the period 166 238
Less: Appropriations
Interim Dividend (18) 220
 770 (Plant and machinery at cost) – 10 (Cost of plant and machinery sold)
3. Long term borrowing 530

10% Debentures 200
4. PPE
Land
Opening balance 220
Add: Revaluation adjustment 140
Closing balance 360
Plant and Machinery
Opening balance 770
Less: Disposed off (10)
760
Less: Depreciation (172-8+76) (240)
Closing balance 520
Total 880
5. Other Income
Profit on sale of machinery:
Sale value of machinery 4
Less: Book value of machinery (10-8) (2) 2
6. Finance costs
Debenture interest 20
7. Other expenses:
Factory expenses 60
Selling expenses 30
Administrative expenses 30 120
Note: The final dividend will not be recognized as a liability at the balance sheet date (even if it is declared
after reporting date but before approval of the financial statements) as per Accounting Standards. Hence, it
has not been recognized in the financial statements for the year ended 31 March, 20X2. Such dividends will
be disclosed in notes only.
  
Question 10
You are required to prepare Balance sheet and statement of Profit and Loss from the following trial balance of
Haria Chemicals Ltd. for the year ended 31st March, 20X1.
Haria Chemicals Ltd.
Trial Balance as at 31st March, 20X1
Particulars ` Particulars `
Inventory 6,80,000 Equity Shares
Furniture 2,00,000 Capital (Shares of ` 10 each) 25,00,000
Discount 40,000 11% Debentures 5,00,000
Loan to Directors 80,000 Bank loans 6,45,000
Advertisement 20,000 Trade payables 2,81,000
Bad debts 35,000 Sales 42,68,000
Commission 1,20,000 Rent received 46,000
Purchases 23,19,000 Transfer fees 10,000
Plant and Machinery 8,60,000 Profit & Loss account 1,39,000
Rentals 25,000 Depreciation provision:
Current account 45,000 Machinery 1,46,000
Cash 8,000
Interest on bank loans 1,16,000
Preliminary expenses 10,000
Fixtures 3,00,000
Wages 9,00,000
Consumables 84,000
Freehold land 15,46,000
Tools & Equipments 2,45,000
Goodwill 2,65,000
Trade receivables 4,40,000
Dealer aids 21,000
Transit insurance 30,000
Trade expenses 37,000
Distribution freight 54,000
Debenture interest 55,000
85,35,000 85,35,000
Additional information: Closing Inventory on 31-3-20X1: ` 8,23,000.
(Study Material)
Answer
Schedule (1) Rupees as at the
No. end of 31st March
20X1 (2)
(1) Shareholders’ funds : 1 25,00,000
(a) Share Capital
(b) Reserves and Surplus 2 7,40,000
(2) Non Current Liabilities
(a) Long term borrowings 3 11,45,000
(3) Current Liabilities
(a) Trade payables 2,81,000
Total 46,66,000
Assets
(1) Non current assets
(a) PPE 4 30,05,000
(b) Intangible assets (goodwill) 2,65,000
(2) Current assets
(a) Inventories 8,23,000
(b) Trade receivables 4,40,000
(c) Cash and bank balances 5 53,000
(d) Short term loans and advances 6 80,000
Total 46,66,000
Statement of Profit and Loss for the year ended 31st March, 20X1
Schedule Figures
Revenue from operations 42,68,000
Other income 7 56,000
(A) 43,24,000
Expenses
Cost of materials consumed 8 23,19,000
Change in inventory of finished goods 9 (1,43,000)
Employee benefit expenses 10 9,00,000
Finance cost 11 1,71,000
Other expenses 12 4,76,000
(B) 37,23,000
Profit before tax (A – B) 6,01,000
Provision for tax —
Profit for the period 6,01,000
Notes to Accounts
1. Share capital `
Authorised:
Equity share capital of ` 10 each 25,00,000
Issued and Subscribed:
Equity share capital of ` 10 each 25,00,000
2. Reserves and Surplus
Balance as per last balance sheet 1,39,000
Balance in profit and loss account 6,01,000
7,40,000
3. Long term Borrowings
Bank loans (assumed long-term) 6,45,000
4. PPE 11,45,000
Gross block Depreciation Net Block

Freehold land 15,46,000 15,46,000
Furniture 2,00,000 2,00,000
Fixtures 3,00,000 3,00,000
Plant & Machinery 8,60,000 1,46,000 7,14,000
Tools & Equipment 2,45,000 ________ 2,45,000
Total 31,51,000 1,46,000 30,05,000
5. Cash and bank balances
Cash and cash equivalents
Current account balance 45,000
Cash 8,000
Other bank balances Nil
6. Short-term loans and Advances 53,000
Loan to directors 80,000
7. Other Income
Rent received 46,000
Transfer fees 10,000
8. Cost of materials consumed 56,000
Purchases 23,19,000
9. Changes in inventory of finished goods, WIP & Stock in trade
Opening inventory 6,80,000
Closing inventory (8,23,000) (1,43,000)
10. Employee benefit expense
Wages 9,00,000
11. Finance cost
Interest on bank loans 1,16,000
Debenture interest 55,000
1,71,000
12. Other Expenses
Consumables 84,000
Preliminary expenses 10,000
Bad debts 35,000
Discount 40,000
Rentals 25,000
Commission 1,20,000
Advertisement 20,000
Dealers’ aids 21,000
Transit insurance 30,000
Trade expenses 37,000
Distribution freight 54,000
4,76,000
  
Question 11
You are required to prepare a Statement of Profit and Loss and Balance Sheet from the following Trial
Balance extracted from the books of the International Hotels Ltd., on 31st March, 20X2:
Dr. Cr.
` `
Authorised Capital-divided into 5,000 6% Preference Shares of ` 100 each and 10,000 equity Shares of ` 100
each 15,00,000
Subscribed Capital -
5,000 6% Preference Shares of ` 100 each 5,00,000
Equity Capital 8,05,000
Purchases - Wines, Cigarettes, Cigars, etc. 45,800
- Foodstuffs 36,200
Wages and Salaries 28,300
Rent, Rates and Taxes 8,900
Laundry 750
Sales - Wines, Cigarettes, Cigars, etc. 68,400
- Food 57,600
Coal and Firewood 3,290
Carriage and Cooliage 810
Sundry Expenses 5,840
Advertising 8,360
Repairs 4,250
Rent of Rooms 48,000
Billiard 5,700
Miscellaneous Receipts 2,800
Discount received 3,300
Transfer fees 700
Freehold Land and Building 8,50,000
Furniture and Fittings 86,300
Inventory on hand, 1st April, 20X1
Wines, Cigarettes. Cigars, etc. 12,800
Foodstuffs 5,260
Cash in hand 2,200
Cash with Bankers 76,380
Preliminary and formation expenses 8,000
2,000 Debentures of ` 100 each (6%) 2,00,000
Profit and Loss Account 41,500
Trade payables 42,000
Trade receivables 19,260
Investments 2,72,300
Goodwill at cost 5,00,000
General Reserve 2,00,000
19,75,000 19,75,000
Wages and Salaries Outstanding 1,280
Inventory on 31st March, 20X2
Wines, Cigarettes and Cigars, etc. 22,500
Foodstuffs 16,400
Depreciation: Furniture and Fittings @ 5% p.a. : Land and Building @ 2% p.a.

The Equity capital on 1st April, 20X1 stood at ` 7,20,000, that is 6,000 shares fully paid and 2,000 shares `
60 paid. The directors made a call of ` 40 per share on 1st October 20X1. A shareholder could not pay the
call on 100 shares and his shares were then forfeited and reissued @ ` 90 per share as fully paid. The
Directors declared a dividend of 8% on equity shares on 2nd April, 20X2, transferring any amount that may be
required from General Reserve. Ignore Taxation.
(Study Material)
Answer
Statement of Profit and Loss of International Hotels Ltd. for the year ended 31st March, 20X2
Particulars Notes Amount
I. Revenue from operations 10 1,83,200
II. Other income (Discount received) 3,300
III. Total Revenue (I + II) 1,86,500
IV. Expenses:
Cost of materials consumed 11 25,060
Purchases of Inventory-in-Trade 12 45,800
Changes in inventories of finished goods work-in- progress and 13 (9,700)
Inventory-in-Trade
Employee benefits expense 14 29,580
Other operating expenses 15 18,000
Selling and administrative expenses 16 14,200
Finance costs 17 12,000
Depreciation and amortisation expense 18 21,315
Other expenses 9 8,000
Total expenses 1,64,255
V. Profit (Loss) for the period (III - IV) 22,245
Balance Sheet of International Hotels Ltd. as at 31st March, 20X2
Particulars Note No `
1 Shareholders' funds
(a) Share capital 1 13,00,000
2 Non-current liabilities
(a) Long-term borrowings 3 2,00,000
3 Current liabilities
(a) Trade Payables 4 42,000
(b) Other current liabilities 5 13,280
Total 18,24,025
ASSETS
1 Non-current assets
(i) PPE 6 9,14,985
(ii) Intangible assets (Goodwill) 5,00,000
(iii) Non-current investments 2,72,300
2 Current assets
(i) Inventories 7 38,900
(ii) Trade receivables 19,260
(iii) Cash and bank balances 8 78,580
Total 18,24,025
Notes to accounts
`
1 Share Capital
Authorised
10,000 Equity shares of ` 100 each 10,00,000
Issued & subscribed
8,000 Equity Shares of ` 100 each (A) 8,00,000
Preference share capital
Authorised
5,000 6% Preference shares of ` 100 each 5,00,000
Issued & subscribed
5,000 6% Preference shares of ` 100 each (B) 5,00,000
Total (A + B) 13,00,000
2 Reserves and Surplus
Capital reserve [100 x (90 – 40)] 5,000
General reserve 2,00,000
Surplus (Profit & Loss A/c) 22,245 2,00,000
Add: Balance from previous year 41,500
63,745
Total 2,68,745
3 Long-term borrowings
Secured
Total 2,00,000
4 Trade Payables 42,000
5 Other current liabilities
Wages and Salaries Outstanding 1,280
Interest on debentures 12,000 13,280
Total 13,280
6 PPE
Freehold land & Buildings 8,50,000
Less: Depreciation (17,000) 8,33,000
Furniture and Fittings 86,300
Less: Depreciation (4,315) 81,985
Total 9,14,985
7 Inventories
Wines, Cigarettes & Cigars, etc. 22,500
Foodstuffs 16,400
Total 38,900
8 Cash and bank balances
Cash at bank 76,380
Cash in hand 2,200
Total 78,580
9
Other expenses
Preliminary Expenses  8,000
Total 8,000
10 Revenue from operations
Sale of products
Wines, Cigarettes, Cigars etc. 68,400
Food 57,600 1,26,000
Sale of services
Room Rent 48,000
Billiards 5,700
Transfer fees 700
Miscellaneous Receipts 2,800
57,200
Total 1,83,200
11 Cost of materials consumed
Opening Inventory 5,260
Add: Purchases during the year 36,200
Less: Closing Inventory (16,400) 25,060
Total 25,060
12 Purchases of Inventory-in-Trade
Wines, Cigarettes etc. 45,800
Total 45,800
13. Changes in inventories of finished goods
work-in-progress and Inventory-in-Trade
Wines, Cigarettes etc.
Opening Inventory 12,800
Less: Closing Inventory (22,500) (9,700)
Total (9,700)
14 Employee benefits expense
Wages and Salaries 28,300
Add: Wages and Salaries Outstanding 1,280 29,580
Total 29,580
15 Other operating expenses
Rent, Rates and Taxes 8,900
Coal and Firewood 3,290
Laundry 750
Carriage and Cooliage 810
Repairs 4,250
Total 18,000
16 Selling and administrative expenses
Advertising 8,360
Total 14,200
17 Finance costs
Interest on Debentures (2,00,000 x 6%) 12,000
Total 12,000
18 Depreciation and amortisation expense
Land and Buildings (8,50,000 x 2%) 17,000
Furniture & Fittings (86,300 x 5%) 4,315 21,315
Total 21,315
 As per AS 26, preliminary expenses are not shown in the balance sheet.
  
Question 12
From the following particulars furnished by Pioneer Ltd., prepare the Balance Sheet as at 31st March, 20X1
as required by Schedule III of the Companies Act. Give notes at the foot of the Balance Sheet as may be
found necessary -
Debit Credit
` `
Equity Capital (Face value of ` 100) 10,00,000
Calls in Arrears 1,000
Land 2,00,000
Building 3,50,000
Plant and Machinery 5,25,000
Furniture 50,000
Loan from State Financial Corporation 1,50,000
Inventory :
Finished Goods 2,00,000
Raw Materials 50,000 2,50,000
Provision for Taxation 68,000
Advances 42,700
Dividend Payable 60,000
Profit and Loss Account 86,700
Cash Balance 30,000
Cash at Bank 2,47,000
Loans (Unsecured) 1,21,000
Trade payables (For Goods and Expenses) 2,00,000
18,95,700 18,95,700
The following additional information is also provided :
(1) 2,000 equity shares were issued for consideration other than cash.
(2) Trade receivables of ` 52,000 are due for more than six months.
(3) The cost of assets:
Building ` 4,00,000
Plant and Machinery ` 7,00,000
Furniture ` 62,500
(4) The balance of ` 1,50,000 in the loan account with State Finance Corporation is inclusive of ` 7,500 for
interest accrued but not due. The loan is secured by hypothecation of the Plant and Machinery.
(5) Balance at Bank includes ` 2,000 with Perfect Bank Ltd., which is not a Scheduled Bank.
(6) The company had contract for the erection of machinery at ` 1,50,000 which is still incomplete.
(Study Material)
Answer
Pioneer Ltd.
Particulars Notes `
(a) Trade Payables 2,00,000
(c) Short-term provisions 5 68,000
Total 18,94,700
Assets
(a) PPE 6 11,25,000
2 Current assets
(a) Inventories 7 2,50,000
(b) Trade receivables 8 2,00,000
(c) Cash and bank balances 9 2,77,000
(d) Short-term loans and advances 42,700
Total 18,94,700
Notes to accounts
`
1 Share Capital
10,000 Equity Shares of ` 100 each (Of the above 2,000 10,00,000
shares have been issued for consideration other than cash)
Less: Calls in arrears (1,000) 9,99,000
Total 9,99,000
Surplus (Profit & Loss A/c) 86,700
Total 2,96,700
Secured
Term Loans
Loan from State Financial Corporation (1,50,000 – 7,500) 1,42,500
(Secured by hypothecation of Plant and Machinery)
Unsecured loan 1,21,000
Total 2,63,500
Interest accrued but not due on loans (SFC) 7,500
Dividend Payable 60,000
Total 67,500
5 Short-term provisions
Provision for taxation 68,000
Total 68,000
6 PPE
Land 2,00,000
Buildings 4,00,000
Less: Depreciation (50,000) (b.f.) 3,50,000
Plant & Machinery 7,00,000
Less: Depreciation (1,75,000) (b.f.) 5,25,000
Furniture & Fittings 62,500
Less: Depreciation (12,500) (b.f.) 50,000
Total 11,25,000
7 Inventories
Raw Material 50,000
Finished goods 2,00,000
Total 2,50,000
8 Trade receivables
Debts outstanding for a period exceeding six months 52,000
Other Debts 1,48,000
Total 2,00,000
Cash at bank
with Scheduled Banks 2,45,000
with others (Perfect Bank Ltd.) 2,000 2,47,000
Cash in hand 30,000
Total 2,77,000
Note: Estimated amount of contract remaining to be executed on capital account and not provided for
`1,50,000. It has been assumed that the company had given this contract for purchase of machinery.
  
Question 13
A. Trade payables as per Schedule III will include:
(a) Dues payable in respect to statutory obligation
(b) Interest accrued on trade payables
(c) Bills payables.
B. Securities Premium Account is shown on the liabilities side in the Balance Sheet under the heading:
(a) Reserves and Surplus.
(b) Current Liabilities.
(c) Share Capital.
C. “Fixed assets held for sale” will be classified in the company’s balance sheet as
(a) Current asset
(b) Non-current asset
(c) Capital work- in- progress
D. Receivables arising from the activities being carried out by the company, during the lean period, which is
not in its normal course of business, is considered as:
(a) Other current/non-current assets
(b) Trade receivables
(c) Bills receivables
E. If there is increase in managerial remuneration, exceeding the overall ceiling as given in section 198 of
the Companies Act, then sanction of which authority is required?
(a) Registrar of the company.
(b) Central Government.
(c) Board of Directors of the company.
F. Declaration of dividends for current year is made after providing for
(a) Depreciation of past years only.
(b) Depreciation on assets for the current year and arrears of depreciation of past years (if any).
(c) Depreciation on current year only and by forgoing arrears of depreciation of past years.
G. For companies having profits, the overall maximum limit for managerial remuneration as per Section 198
of the Companies Act, 2013 is
(a) 11% of net profit.
(b) 10% of net profit.
(c) 5% of net profit.
H. For the purpose of managerial remuneration, paid up share capital used for calculation of effective capital
means
(a) Paid up share capital excluding share application money and advances against shares.
(b) Paid up share capital excluding share application money but including advances against shares.
(c) Paid up share capital including both share application money and advances against shares.
I. Which of the following is not a current liability as per Schedule III?
(a) Bank overdraft
(b) Net deferred tax liability
(c) Dividend declared.
J. As per the Schedule III, separate disclosure is required for an item of income or expenditure which
exceeds:
(a) % of Revenue from operations or ` 1,00,000 whichever is lower
(b) 1% of Revenue or ` 5,000
(c) 1% of Revenue from operations or ` 1,00,000 whichever is higher.
K. Few friends created a start-up and formed private company for production and marketing of product. At
the end of financial year, their company is not required to prepare:
(a) Cash flow statement
(b) Balance Sheet and Profit & Loss Account
(c) Notes to Accounts.
L. The following is not included while computing “Effective capital":
(a) Paid up share capital.
(b) Long term loans repayable after one year.
(c) Revaluation reserves.
ANSWERS/HINTS
A. (c) B. (a) C. (a) D. (a) E. (b) F. (b)
G. (a) H. (a) I. (b) J. (c) K. (a) L. (c)
  
Question 14
State under which head these accounts should be classified in Balance Sheet, as per Schedule III of the
Companies Act, 2013:
(i) Share application money received in excess of issued share capital.
(ii) Share option outstanding account.
(iii) Unpaid matured debenture and interest accrued thereon.
(iv) Uncalled liability on shares and other partly paid investments.
(v) Calls unpaid.
(vi) Money received against share warrant.
(Study Material)
Answer
(i) Current Liabilities/Other Current Liabilities
(ii) Shareholders' Fund/Reserve & Surplus
(iii) Current liabilities/Other Current Liabilities
(iv) Contingent Liabilities and Commitments
(v) Shareholders' Fund/Share Capital
(vi) Shareholders' Fund/Money received against share warrants
(vii)   
Question 15
The following extract of Balance Sheet of Star Ltd. (non- investment) company was obtained:
Liabilities `
Authorised capital:
60,000, 14% preference shares of ` 100 60,00,000
6,00,000 Equity shares of ` 100 each 6,00,00,000
6,60,00,000
Issued and subscribed capital:
45,000, 14% preference shares of ` 100 each fully paid 45,00,000
3,60,000 Equity shares of ` 100 each, ` 80 paid-up 2,88,00,000
Share suspense account 60,00,000
Reserves and surplus:
Capital reserves (` 4,50,000 is revaluation reserve) 5,85,000
Liabilities `
Securities premium 1,50,000
Secured loans:
15% Debentures 1,95,00,000
Unsecured loans:
Public deposits 11,10,000
Cash credit loan from SBI (short term) 3,95,000
Current Liabilities:
Assets:
Investment in shares, debentures, etc. 2,25,00,000
Profit and Loss account (Dr. balance) 45,75,000
Share suspense account represents application money received on shares, the allotment of which is not yet
made.
You are required to compute effective capital as per the provisions of Schedule V. Would your answer differ if
Star Ltd. is an investment company?
(Study Material)
Answer
Computation of effective capital:
Where Star Ltd. Where Star Ltd. is an
Is a non- investment investment company
company `
`
Paid-up share capital —
45,000, 14% Preference shares 45,00,000 45,00,000
3,60,000 Equity shares 2,88,00,000 2,88,00,000
Capital reserves (5,85,000 – 4,50,000) 1,35,000 1,35,000
Securities premium 1,50,000 1,50,000
15% Debentures 1,95,00,000 1,95,00,000
Public Deposits 11,10,000 11,10,000
(A) 5,41,95,000 5,41,95,000
Investments 2,25,00,000 —
Profit and Loss account (Dr. balance) 45,75,000 45,75,000
(B) 2,70,75,000 45,75,000
Effective capital (A–B) 2,71,20,000 4,96,20,000
  
Question 16
On 31st March, 20X1 Bose and Sen Ltd. provides to you the following ledger balances after preparing its
Profit and Loss Account for the year ended 31st March, 20X1:
Credit Balances:
`
Equity shares capital, fully paid shares of ` 10 each 70,00,000
Loan from State Finance Corporation 10,50,000
(Secured by hypothecation of Plant & Machinery Repayable
within one year` 2,00,000)
Loans: Unsecured (Long term) 8,47,000
Sundry Creditors for goods &expenses (Payable within 6 months) 14,00,000
Profit & Loss Account 7,00,000
1,33,63,000
Debit Balances:
`
Calls in arrear 7,000
Land 14,00,000
Buildings 20,50,000
Plant and Machinery 36,75,000
Furniture& Fixture 3,50,000
Inventories: Finished goods 14,00,000
Raw Materials 3,50,000
Trade Receivables 14,00,000
Advances: Short-term 2,98,900
Cash in hand 2,10,000
Balances with banks 17,29,000
Preliminary Expenses 93,100
Patents & Trademarks 4,00,000
1,33,63,000
The following additional information is also provided in respect of the above balances:
(i) 4,20,000 fully paid equity shares were allotted as consideration for land & buildings.
(ii) Cost of Building ` 28,00,000
(iii) Cost of Plant & Machinery ` 49,00,000
Cost of Furniture & Fixture ` 4,37,500
(iv) Trade receivables for ` 3,80,000 are due for more than 6 months.
(v) The amount of Balances with Bank includes ` 18,000 with a bank which is not a scheduled Bank and the
deposits of ` 5 lakhs are for a period of 9 months.
(vi) Unsecured loan includes ` 2,00,000 from a Bank and ` 1,00,000 from related parties.
You are not required to give previous year’s figures. You are required to prepare the Balance Sheet of the
Company as on 31stMarch, 20X1 as required under Schedule III to the Companies Act, 2013.
(Study Material)
Answer
Bose and Sen Ltd.
Particulars Notes Figures at the end of
current reporting
period (`)
(b) Other current liabilities 4 2,00,000
(c) Short-term provisions 5 8,16,900
Total 1,32,62,900
Assets
(a) PPE 6 74,75,000
(b) Intangible assets (Patents & Trade Marks) 4,00,000
2 Current assets
(d) Short-term loans and advances 2,98,900
Total 1,32,62,900
Notes to accounts
`
1 Share Capital
Issued, subscribed and called up 70,00,000
7,00,000 Equity Shares of ` 10 each (Out of the above
4,20,000 shares have been issued for consideration other (7,000) 69,93,000
than cash) 69,93,000
2 Less: Calls in arrears
Total 15,49,100
Reserves and Surplus 7,00,000
General Reserve (93,100) 6,06,900
Surplus (Profit & Loss A/c) 21,56,000
3 Less: Preliminary expenses
Total
Long-term borrowings 8,50,000
Secured Term Loans
Loan from State Finance Corporation (` 10,50,000 - `
2,00,000
2,00,000) (Secured by hypothecation of Plant and
1,00,000
Machinery)
5,47,000 8,47,000
Unsecured
Bank Loan 16,97,000
Loan from related parties Others
Total
 Preliminary expenses have been written off in line with Accounting Standards.
`
Current maturities of long-term debt-loan Instalment 2,00,000
repayable within one year
Provision for taxation 8,16,900
6 Property, plant and equipment
Land 14,00,000
Buildings 28,00,000
Furniture & Fittings 4,37,500
Less: Depreciation (87,500) (b.f.) 3,50,000
Total 74,75,000
7 Inventories
Raw Material 3,50,000
8 Trade receivables 17,50,000
Debts outstanding for a period exceeding six months 3,80,000
Other Debts 10,20,000
Total 14,00,000
Cash at bank with Scheduled Banks 12,11,000
with others 18,000 12,29,000
Other bank balances 5,00,000
Bank deposits for period of 9 months 5,00,000
Total 19,39,000
  
Question 17
From the following particulars furnished by Alpha Ltd., prepare the Balance Sheet as on 31st March 20X1 as
required by Part I, Schedule III to the Companies Act, 2013.
Particulars Debit ` Credit `
Equity Share Capital (Face value of ` 100 each) 50,00,000
Call in Arrears 5,000
Land & Building 27,50,000
Furniture 2,50,000
Loan from State Financial Corporation 7,50,000
2,50,000
Inventory: 10,00,000
Raw Materials Finished Goods 12,50,000
Short term Advances 2,13,500
Cash in Hand 1,50,000
Cash at Bank 12,35,000
Unsecured Loan 6,05,000
Trade payables (for Goods and Expenses) 8,00,000
Loans & advances from related parties 2,00,000
94,78,500 94,78,500
The following additional information is also provided:

(i) 10,000 Equity shares were issued for consideration other than cash.
(ii) Trade receivables of ` 2,60,000 are due for more than 6 months.
(iii) The cost of the Assets were:
Building ` 30,00,000, Plant & Machinery ` 35,00,000 and Furniture ` 3,12,500
(iv) The balance of ` 7,50,000 in the Loan Account with State Finance Corporation is inclusive of ` 37,500 for
Interest Accrued but not Due. The loan is secured by hypothecation of Plant & Machinery.
(v) Balance at Bank includes ` 10,000 with Omega Bank Ltd., which is not a Scheduled Bank.
(vi) Transfer ` 20,000 to general reserve is proposed by Board of directors.
(vii) Board of directors declared dividend of 5% on the paid up capital on 2nd April, 20X1.
(Study Material)
Answer
Alpha Ltd.
Particulars Notes `
Long-term borrowings 3 13,17,500
(c) Short-term provisions 5 6,40,000
(d) Short-term borrowings 2,00,000
Total 94,73,500
Assets
PPE 6 56,25,000
2 Current assets
Total 94,73,500
Notes to accounts
`
1 Share Capital
50,000 Equity Shares of ` 100 each
(of the above 10,000 shares have been issued for consideration
other than cash) 50,00,000
Less: Calls in arrears (5,000) 49,95,000
Total 49,95,000
Add: current year transfer 20,000 10,70,000
Profit & Loss balance
Profit for the year 4,33,500
Less: Appropriations:
Transfer to General reserve (20,000)
4,13,500
Total 14,83,500
Secured Term Loan
State Financial Corporation Loan (7,50,000- 37,500)
(Secured by hypothecation of Plant and Machinery) 7,12,500
Unsecured Loan 6,05,000
Total 13,17,500
Interest accrued but not due on loans (SFC) 37,500
37,500
Provision for taxation 6,40,000
Land and Building 30,00,000
Less: Depreciation (2,50,000) 27,50,000
(b.f.)
(b.f.)
Less: Depreciation (62,500) 2,50,000
(b.f.)
Total 56,25,000
7 Inventories
Raw Materials 2,50,000
Total 12,50,000
8 Trade receivables
Outstanding for a period exceeding six months 2,60,000
Other Amounts 7,40,000
Total 10,00,000

Cash at bank
with Scheduled Banks 12,25,000
with others (Omega Bank Ltd.) 10,000 12,35,000
Total 13,85,000
  
Question 18
Ring Ltd. was registered with a nominal capital of ` 10,00,000 divided into shares of ` 100 each. The
following Trial Balance is extracted from the books on 31st March, 20X2:
Buildings 5,80,000 Sales 10,40,000
Machinery 2,00,000 Outstanding Expenses 4,000
Closing Stock 1,80,000 Provision for Doubtful 6,000
Loose Tools 46,000 Debts (1-4-20X1)
Purchases (Adjusted) 4,20,000 Equity Share Capital 4,00,000
Salaries 1,20,000 General Reserve 80,000
Directors’ Fees 20,000 Profit and Loss A/c 50,000
Rent 52,000 (1-4-20X1)
Depreciation 40,000 Creditors 1,84,000
Bad Debts 12,000 Provision for depreciation:
Investment 2,40,000 On Building 1,00,000
Interest accrued on 4,000 On Machinery 1,10,000 2,10,000
investment
Debenture Interest 56,000 14% Debentures 4,00,000
Advance Tax 1,20,000 Interest on Debentures 28,000
Sundry expenses 36,000 accrued but not due
Debtors 2,50,000 Interest on Investments 24,000
Bank 60,000 Unclaimed dividend 10,000
24,36,000 24,36,000
You are required to prepare statement of Profit and Loss for the year ending 31 st March, 20X2 and Balance
sheet as at that date after taking into consideration the following information:
(a) Closing stock is more than opening stock by ` 1,60,000;
(b) Provide to doubtful debts @ 4% on Debtors
(c) Make a provision for income tax @30%.
(d) Depreciation expense included depreciation of ` 16,000 on Building and that of ` 24,000 on Machinery.
(e) The directors declared a dividend @ 25% on 2nd April, 20X2 and transfer to General Reserve @ 10%.
(f) Bills Discounted but not yet matured ` 20,000.
(Study Material)
Answer
Ring Ltd.
Profit and Loss Statement for the year ended 31st March, 20X2
Particulars Note No. (` In lacs)
I Revenue from operations 10,40,000
II Other income (interest on investment) 24,000
III Total Revenue [I + II] 10,64,000
IV Expenses:
Cost of purchase [4,20,000+ 1,60,000] 5,80,000
Changes in inventories [20,000-1,80,000] (1,60,000)
Employee Benefits Expense 1,20,000
Finance Costs (debenture interest) 56,000
Depreciation and Amortisation Expenses 40,000
8
Other Expenses 1,24,000
Total Expenses 7,60,000
V Profit before Tax (III-IV) 3,04,000
VI Tax Expenses @ 30% (91,200)
VII Profit for the period 2,12,800
Balance Sheet of Ring Ltd. as at 31ST March, 20X2
Particulars Note No. `
I EQUITY AND LIABILITIES
(1) Shareholders’ Funds
(a) Share Capital 1 4,00,000
(2) Non-Current Liabilities
(a) Long-term Borrowings (14% debentures) 4,00,000
(3) Current Liabilities
(a) Trade Payable (Sundry Creditors) 1,84,000
(b) Other Current Liabilities 3 42,000
(c) Short-Term Provisions 4 91,200
Total 14,60,000
II
ASSETS
(1) Non-Current Assets
(a) PPE 5 5,70,000
(b) Non-current Investments 2,40,000
(2) Current Assets
(b) Trade Receivables 7 2,40,000
(c) Cash and bank balances 60,000
(d) Short Term Loans and Advances (Advance Payment of Tax) 1,20,000
(e) Other Current Assets 4,000
(Interest accrued on investments)
Total 14,60,000
Note: There is a Contingent Liability for bills discounted but not yet matured amounting to ` 20,000.
Notes to Accounts:
1. Share Capital
Authorised Capital
10,000 Equity Shares of ` 100 each 10,00,000
Issued Capital
Subscribed Capital and fully paid
2. Reserve and Surplus
General Reserve [` 80,000 + ` 21,280] 1,01,280
Balance of Statement of Profit & Loss Account
Opening Balance 50,000
Add: Profit for the period 2,12,800
Appropriations 2,62,800
Transfer to General Reserve @ 10% (21,280) 2,41,520
3. Other Current Liabilities 3,42,800
Unclaimed Dividend 10,000
Outstanding Expenses 4,000
Interest accrued on Debentures 28,000
4. Short-Term Provision 42,000
Provision for Tax 91,200
Buildings 5,80,000
Less: Provision for Depreciation 1,00,000 4,80,000
Plant and Equipment 2,00,000
Less: Provision for Depreciation 1,10,000 90,000
6 Inventories 5,70,000
Closing Stock of Finished Goods 1,80,000
Loose Tools 46,000 2,26,000
7 Trade Receivables
Sundry Debtors 2,50,000
Less: Provision for Doubtful Debts (10,000) 2,40,000
8. Other Expenses
Rent 52,000
Directors’ Fees 20,000
Bad Debts 12,000
Provision for Doubtful Debts (4% of ` 2,50,000 less ` 6,000) 4,000
1,24,000
  
Question 19
On 31st March, 20X1, SR Ltd. provides the following ledger balances after preparing its Profit & Loss Account
for the year ended 31st March, 20X1.
Particulars Amount (`)
Debit Credit
Equity Share Capital, fully paid shares of ` 50 each 80,00,000
Calls in arrear 15,000
Land 25,00,000
Buildings 30,00,000
Furniture & Fixture 13,00,000
Securities Premium 15,00,000
Loan from Public Finance Corporation (Secured by Hypothecation of 26,30,000
Land)
Other Long Term Loans 22,50,000
Short Term Borrowings 4,60,000
Inventories: Finished goods 45,00,000
Raw materials 13,00,000
Trade Receivables 17,50,000
Advances: Short Term 3,75,000
Unpaid Dividend 70,000
Cash in Hand 70,000
Balances with Banks 4,14,000
Total 1,76,24,000 1,76,24,000
The following additional information was also provided in respect of the above balances:
(1) 50,000 fully paid equity shares were allotted as consideration for land.
(2) The cost of assets were:
Building ` 32,00,000
Plant and Machinery ` 30,00,000
Furniture and Fixture ` 16,50,000
(3) Trade Receivables for ` 4,86,000 due for more than 6 months.
(4) Balances with banks include ` 56,000, the Naya bank, which is not a scheduled bank.
(5) Loan from Public Finance Corporation repayable after 3 years.
(6) The balance of ` 26,30,000 in the loan account with Public Finance Corporation is inclusive of `1,34,000
for interest accrued but not due. The loan is secured by hypothecation of land.
(7) Other long term loans (unsecured) includes:

Loan taken from Nixes Bank ` 13,80,000
(Amount repayable within one year ` 4,80,000)
Loan taken from Directors ` 8,50,000
(8) Bills Receivable for ` 1,60,000 maturing on 15th June, 20X1 has been discounted.
(9) Short term borrowings includes:
Loan from Naya bank ` 1,16,000 (Secured)
Loan from directors ` 48,000
(10)Transfer of ` 35,000 to general reserve has been proposed by the Board of directors out of the profits for
the year.
(11)Inventory of finished goods includes loose tools costing ` 5 lakhs (which do not meet definition of
property, plant & equipment as per AS 10)
You are required to prepare the Balance Sheet of the Company as on March 31st 20X1 as required under
Part - I of Schedule III of the Companies Act, 2013.
You are not required to give previous year figures.
(Study Material)
Answer
SR Ltd.
Particulars Notes Figures at the end of current reporting
period (`)
(a) Short-term borrowings 4 4,60,000
(b) Trade Payables 8,13,000
(c) Other current liabilities 5 6,84,000
(d) Short-term provisions 6 3,80,000
Total 1,76,09,000
Assets
(a) PPE 7 92,00,000
2 Current assets
(c) Cash and cash equivalents 10 4,84,000
Total 1,76,09,000
Notes to accounts
`
1. Share Capital
Issued, subscribed and called up 80,00,000
1,60,000 Equity Shares of ` 50 each (Out of the above
50,000 shares have been issued for consideration other (15,000) 79,85,000
than cash)
2. Less: Calls in arrears
Reserves and Surplus
9,41,000
General Reserve
35,000 9,76,000
Add: Transferred from Profit and loss account
15,00,000
Securities premium Surplus (Profit & Loss A/c)
5,80,000
Less: Appropriation to General Reserve (proposed)
(35,000) 5,45,000
30,21,000
3.
Long-term borrowings 24,96,000
Secured: Term Loans
Loan from Public Finance Corporation [repayable after 3
years (` 26,30,000 - ` 1,34,000 for interest accrued but not
due)]
(secured by hypothecation of land)
Unsecured
Bank Loan (Nixes bank) 9,00,000
(` 13,80,000 - ` 4,80,000
repayable within 1 year)
Loan from Directors 8,50,000
Others 20,000 17,70,000
Total 42,66,000
4. Short-term borrowings
Loan from Naya bank (Secured) 1,16,000
Loan from Directors 48,000
Others 2,96,000 4,60,000
5.
Other current liabilities
4,80,000
Loan from Nixes bank repayable within one year
70,000
Unpaid dividend
1,34,000 6,84,000
Interest accrued but not due on borrowings
6.
Short-term provisions 3,80,000
7. Provision for taxation
PPE 25,00,000
Land Buildings 32,00,000
Total 92,00,000
8. Inventories
Raw Material 13,00,000
Loose tools 5,00,000 58,00,000
9. Trade receivables
Outstanding for a period exceeding six months 4,86,000
Others 12,64,000
Total 17,50,000
10.
Cash and cash equivalents 3,58,000
Balances with banks with 56,000 4,14,000
Scheduled Banks 70,000
with others banks 4,84,000
Cash in hand
Total
Note: There is a contingent liability amounting to ` 1,60,000
  
Question 20
Calculate the maximum remuneration payable based on effective capital of a non-investment company for the
year, from the information given below:
Particulars (` in’000)
(i) Profit for the year (calculated as per section 198 of the 3,000
Companies Act, 2013)
(ii) Paid up capital 18,000
(iii) Reserves & Surplus 7,200
(iv) Securities premium 1,200
(v) Long-term loans 6,000
(vi) Investment 3,600
(vii Preliminary expenses not written off 3,000
(viii) Remuneration paid to the Managing Director during the year 600
(November 2011, 5 Marks)
  
Question 21
Sagar Ltd. has issued convertible bonds for `65 crores which are due to mature on 30th September, 2018.
While preparing financial statements for the year ending 31st March, 2018, company expects that bond
holders will not exercise their option of converting bonds to equity shares. How should the company classify
the convertible bonds as per the requirements of Schedule-Ill to the Companies Act, 2013 as on 31st March,
2018?
Also state, whether classification of convertible Bonds as per Schedule-Ill to the Companies Act will change if
the company expects that convertible bond holders will convert their holdings into equity shares of Sagar Ltd.
(November 2018) (5 marks)
Answer
Schedule III to the companies Act, 2013 provides that:
"A liability should 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;
(b) it is held primarily for the purpose of being traded;
(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 counterparty, result
in its settlement by the issue of equity instruments and do not affect its classification."
In the present situation, Sagar Ltd. does not have an unconditional right to defer settlement of the liability for
at least 12 months after the reporting date, hence Sagar Ltd. should classify the FCCBs as current liabilities
as on 31st March 2018.
The position will be same even when the bond holders are expected to convert their holdings into equity
shares of Sagar Ltd. Expectations cannot be called as unconditional rights. Thus, in this situation also, Sagar
Ltd. should classify the FCCBs as current liabilities as on 31st March 2018.
  
Question 22
How will a company classify its investment in preference shares, which are convertible into equity shares
within one year from the balance sheet date? Will it classify the investment as a current asset or a non-
current asset? Explain.
(MTP August 2018) (5 Marks)
Answer:
In accordance with the Schedule III, an investment realizable within 12 months from the reporting date is
classified as a current asset. Such realisation should be in the form of cash or cash equivalents, rather than
through conversion of one asset into another non-current asset. Hence, company must classify such an
investment as a non-current asset, unless it expects to sell the preference shares or the equity shares on
conversion and realise cash within 12 months.
  
Question 23
(MTP October 2018) (5 Marks)
Answer:
  
Question 24
(MTP-March 2019) (5 Marks)
Answer:
  
Question 25
(RTP November 2019)
Answer:
classified as a current asset. Such realization should be in the form of cash or cash equivalents, rather than
  
Question 26
X Ltd. is a group engaged in manufacture and sale of industrial and FMCG products. One of their division
also deals in Leasing of properties - Mobile Towers. The accountant showed the rent arising from the leasing
of such properties as other income in the Statement of Profit and Loss.
Comment whether the classification of the rent income made by the accountant is correct or not in the light of
Schedule III to the Companies Act, 2013.
(November 2019, New Course, 5 Marks)
Answer
As per para 4 of the ‘General Instructions for preparation of Statement of Profit and Loss’ given in the
Schedule III to the Companies Act, 2013, ‘other income’ does not include operating income.
The term “Revenue from operations” has not been defined under Schedule III to the Companies Act 2013.
However, as per Guidance Note on Schedule III to the Companies Act 2013 this would include revenue
arising from a company’s operating activities i.e. either its principal or ancillary revenue -generating activities.
Whether a particular income constitutes “Revenue from operations” or “other income” is to be decided based
on the facts of each case and detailed understanding of the company’s activities. The classification of income
would also depend on the purpose for which the particular asset is acquired or held.
As per the information given in the question, X Ltd is a group engaged in manufacture and sale of industrial
and FMCG products and its one of the division deals in leasing of properties- Mobile Towers. Since its one
division is continuously engaged in leasing of properties, it shall be considered as its principal or ancillary
revenue -generating activities. Therefore, the rent arising from such leasing shall be shown under the head
“Revenue from operations” and not as “Other Income”.
Hence the presentation of rent arising from the leasing of such properties as “other income” in the statement
of Profit and Loss is not correct. It should be shown under the head “Revenue from operations”.
  

Financial Statement of Companies

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Financial Statement of Companies

Uploaded by

Copyright:

Available Formats

Chapter 4

Financial Statements of Companies

UNIT 1: Preparation of Financial Statements

Director’s fees 1,34,780

Issued & subscribed & called up

3. Long term borrowing 530

Gross block Depreciation Net Block

Depreciation: Furniture and Fittings @ 5% p.a. : Land and Building @ 2% p.a.

The following additional information is also provided:

9 Cash and bank balances

(7) Other long term loans (unsecured) includes:

You might also like