Final Accounts of Companies — Notes

Under Section 129 of the Companies Act, 2013, a company's financial statements must give a true and fair view and be drawn up in the form of Schedule III. Part I of the Schedule gives the form of the Balance Sheet (vertical: I. Equity and Liabilities, then II. Assets), with notes to accounts; Part II gives the form of the Statement of Profit and Loss.

ISC 2027 scope: the Balance Sheet as per Schedule III Part I with notes to accounts, prepared from a trial balance with adjustments. Not in the ISC 2027 syllabus: the Statement of Profit and Loss as per Schedule III Part II is not required for final accounts, so the profit for the year is either given or worked out in one simple working.

Layout of the face: Particulars | Note No. | amount at the year end (the previous year's figures are shown alongside in practice).

Operating cycle: the time between acquiring the materials for processing and collecting the cash for the finished goods. If a normal operating cycle cannot be identified, Schedule III assumes twelve months.

An asset is current when it is expected to be realised (or sold or consumed) in the normal operating cycle, is held mainly for trading, is expected to be realised within twelve months after the reporting date, or is cash or a cash equivalent that is not restricted.

A liability is current when it is expected to be settled in the normal operating cycle, is held mainly for trading, is due within twelve months after the reporting date, or the company cannot defer its settlement for at least twelve months.

Everything else is non-current. A long operating cycle (aged rice, maturing timber) can make an item current although it is more than a year away.

A sub-head gets a note when it has more than one item, a deduction or a working; Share Capital and Reserves and Surplus always get one. Notes are numbered in Schedule III order and each note total equals its figure on the face.

Share Capital note (format)

• Authorised capital: number and class of shares, face value — for information.
• Issued capital — for information.
• Subscribed capital: subscribed and fully paid; subscribed but not fully paid (called-up amount less calls in arrears).
• Add: forfeited shares (amount received on shares forfeited and not reissued).
• Total = the figure against Share Capital.

Calls in advance are not part of this note (Other Current Liabilities).

Profit for the year (working): profit given before adjustments − depreciation − increase in provision for doubtful debts − outstanding expenses + prepaid expenses + accrued income − interest accrued on debentures − provision for tax.

Reserves and Surplus note: capital reserve; securities premium; general reserve (opening + transfer); Surplus, i.e. balance in the Statement of Profit and Loss = opening balance + profit for the year − transfers to reserves. A debit balance is shown as a negative figure, even if the head becomes negative.

A transfer to general reserve moves an amount from the surplus to the reserve: the total of Reserves and Surplus is unchanged by it.

• Long-term Borrowings: debentures, term loans, public deposits repayable after twelve months; state the nature of the security and the terms of redemption or repayment.
• Short-term Borrowings: bank overdraft, cash credit, loans repayable on demand and, after the amendment, current maturities of long-term borrowings (the instalments or debentures repayable within twelve months).
• Not borrowings: interest accrued (Other Current Liabilities) and premium payable on redemption of debentures (Other Long-term Liabilities).

Working: long-term part = amount outstanding − amount repayable within twelve months.

Property, Plant and Equipment note: each class of asset (land, buildings, plant and machinery, furniture, vehicles) at cost, less accumulated depreciation = opening accumulated depreciation + depreciation for the year. Land is generally not depreciated.

Intangible Assets note: goodwill, patents, trademarks, copyrights, computer software, less amortisation.

Amended captions: the group is Property, Plant and Equipment and Intangible Assets, with (i) Property, Plant and Equipment (formerly tangible assets), (ii) Intangible Assets, (iii) Capital Work-in-Progress and (iv) Intangible Assets under Development.

The ISC 2027 syllabus lists these amended Schedule III points:

1. Proposed dividend: not a liability until the shareholders declare it at the annual general meeting; it is not provided for and is shown under contingent liabilities and commitments in the notes.
2. Property, Plant and Equipment and Intangible Assets replaces "fixed assets: tangible / intangible".
3. Current maturities of long-term borrowings are shown under Short-term Borrowings.
4. Securities Premium (formerly "Securities Premium Reserve") is shown under Reserves and Surplus.

Note: Contingent Liabilities and Commitments (to the extent not provided for) — for example a proposed dividend, claims against the company not acknowledged as debts, guarantees given. The amounts are disclosed, not added.

Kunchikal Rainwear Ltd (imagined): profit for the year ₹1,50,000; Balance Sheet total ₹23,13,000; proposed dividend ₹99,000 disclosed in Note 11, not deducted from the surplus of ₹1,70,000.