Company Accounts — II
(The Official FORMAT — How Companies MUST Present Their Accounts!)
Chapter 14 taught you WHAT companies are. This chapter teaches you HOW they must present their financial statements — the exact format prescribed by Schedule III of the Companies Act 2013, the 5 financial statements required under Ind AS-1, and consolidated accounts under Ind AS-110.
Banky Learns the “Official Template”! 📋
In school, you could write an essay in any format. But a legal document? It has a FIXED format! Similarly, companies MUST prepare their BS and P&L in the format prescribed by Schedule III. Banky needs to know this format to read any company’s annual report.
The Full Chapter — Formats & Rules
📖 Part 1 — Legal Requirement (Sections 128 & 129)
Section 128, CA 2013: Every company MUST keep proper books of account. Section 129: Financial statements must give a “true and fair view”, comply with accounting standards (Section 133), and follow the format in Schedule III.
Exception: Banking companies, insurance companies, electricity companies follow their OWN formats (under their respective Acts — Banking Regulation Act for banks, IRDA Act for insurance, etc.).
Financial Statements include: (i) Balance Sheet, (ii) P&L Account (or Income & Expenditure for non-profits), (iii) Cash Flow Statement, (iv) Statement of Changes in Equity (if applicable), (v) Notes to Accounts.
OPC, Small Company, Dormant Company: May NOT include Cash Flow Statement (exempted!).
📊 Part 2 — Balance Sheet Format (Schedule III, Part I)
The prescribed format has two main sections: I. EQUITY & LIABILITIES (sources) and II. ASSETS (uses).
I. EQUITY & LIABILITIES: (1) Shareholders’ Funds: Share Capital, Reserves & Surplus, Money against Share Warrants. (2) Share Application Money pending allotment. (3) Non-Current Liabilities: Long-term borrowings, Deferred tax liabilities, Other long-term liabilities, Long-term provisions. (4) Current Liabilities: Short-term borrowings, Trade payables, Other current liabilities, Short-term provisions.
II. ASSETS: (1) Non-Current Assets: Fixed assets (Tangible, Intangible, Capital WIP, Intangible under development), Non-current investments, Deferred tax assets, Long-term loans & advances, Other non-current assets. (2) Current Assets: Current investments, Inventories, Trade receivables, Cash & cash equivalents, Short-term loans & advances, Other current assets.
Current vs Non-Current: Current asset = expected to be realised within 12 months OR within the operating cycle OR held for trading OR is cash. Everything else = non-current. Same logic for liabilities.
📋 Part 3 — Ind AS-1: Complete Set of Financial Statements
Ind AS-1 (Paragraph 10) requires a COMPLETE set of financial statements consisting of:
1. Balance Sheet as at end of period. 2. Statement of Profit & Loss for the period. 3. Statement of Changes in Equity for the period. 4. Statement of Cash Flows for the period (Ind AS-7). 5. Notes — comprising significant accounting policies and explanatory information.
Minimum comparative info (Para 38A): An entity must present at LEAST TWO of each: two Balance Sheets, two P&L, two Cash Flows, two Changes in Equity + related notes. Compare current year with previous year.
Change in accounting policy? Present a THIRD Balance Sheet (at beginning of preceding period) if retrospective application has material effect (Para 40A).
Consolidated Financial Statements (Ind AS-110): A PARENT entity (that controls one or more subsidiaries) MUST present consolidated financial statements. Control = power over investee + exposure to variable returns + ability to affect returns. Must use UNIFORM accounting policies.
Exam-Ready Points
🎯 Must Remember!
- Section 128: Company MUST keep books of account. Section 129: Financial statements in Schedule III format.
- Schedule III: Prescribes BS + P&L format. Does NOT apply to banks, insurance, electricity companies.
- 5 Financial Statements (Ind AS-1): BS, P&L, Cash Flow, Changes in Equity, Notes. “Statement of changes in ASSETS” is NOT included!
- OPC, Small Co, Dormant Co: May NOT include Cash Flow Statement (exempt).
- BS Format: Equity & Liabilities (4 blocks) + Assets (2 blocks). Vertical format used in practice.
- Current asset: Realised within 12 months / operating cycle / held for trading / cash. Else = non-current.
- Computer hardware = NOT an intangible asset (it’s TANGIBLE!). Brands, goodwill, mining rights = intangible.
- Trade receivables: Sub-classified into 3: Secured-good, Unsecured-good, Doubtful. “Loss” is NOT a sub-category!
- Minimum comparison: 2 years (Para 38A). Change in accounting policy → 3rd BS required (Para 40A).
- Consolidated FS (Ind AS-110): Parent controls subsidiary → MUST consolidate. Uniform policies.
- Control = Power + Variable returns + Ability to affect returns (all 3 needed).
- Rounding: Turnover < ₹100 crore → nearest hundreds/thousands/lakhs. ≥ ₹100 crore → nearest lakhs/crores.
- Financial year: Ends 31st March. Companies incorporated after 1st Jan → first FY ends next 31st March.
- P&L includes: Revenue, Expenses, Profit before tax, Tax, Profit after tax, EPS. “Price Earnings Ratio” is NOT included!
- Notes: Basis of preparation, accounting policies, supporting info, contingent liabilities, non-financial disclosures.
📝 Past Exam Questions
Memory Tricks
🧠 Trick 1
Cash flow, Equity changes, Notes”
“Big People Can Enjoy Napping!” 😴
“Statement of changes in ASSETS” = ❌ TRAP!
🧠 Trick 2
S = Shareholders’ funds
A = Application money
N = Non-current liabilities
C = Current liabilities
Assets: N-C (Non-current + Current)
🧠 Trick 3
within 12 MONTHS? 📅
YES → Current asset ✅
NO → Non-current asset 🏢”
🧠 Trick 4
MUST show COMBINED report card! 📊
Control = Power + Returns + Ability
(All 3 needed!)”
🧠 Trick 5
(you can TOUCH it!)
Software, Brands, Goodwill = INTANGIBLE 💡
(you can’t TOUCH them!)”
🧠 Trick 6
OPC + Small + Dormant =
NO Cash Flow Statement needed! 📊❌
(Exempted by CA 2013)”
Last-Minute Flash Cards
⚡ Module B • Chapter 4 (Unit 15) Done!
- S.128/129: Companies must keep books and present in Schedule III format. Banks follow B.R. Act.
- 5 Statements (Ind AS-1): BS, P&L, Cash Flow, Changes in Equity, Notes. NOT “changes in assets”!
- BS = 4+2: Liabilities (Shareholders, Application, Non-current, Current) + Assets (Non-current, Current).
- Current = 12 months/operating cycle/trading/cash. Non-current = everything else.
- Consolidated FS: Parent controlling subsidiary must consolidate (Ind AS-110). Control = Power + Returns + Ability.
- OPC/Small/Dormant: Exempt from Cash Flow Statement. Hardware = tangible, NOT intangible!
Banky says: “BPCEN = 5 financial statements! BS = 4+2 blocks! Hardware = TANGIBLE! OPC = no CFS needed! Now I can read any Annual Report!” 🎉📋
Next: Chapter 16 — Cash Flow & Funds Flow! 💪