17 Form of Balance Sheet of Companies

Deepika Gautam

epgp books

 

 

LEARNING OBJECTIVES:

 

By studying this module students will be able to gain clarity on the Companies Act 2013 and the final accounts that the companies need to prepare under the act. Not only this, new provisions added by the Companies Act 2013 which need to be followed by the company is also highlighted. The students will also be able to understand the general guidelines in preparing the balance sheet.

 

INTRODUCTION:

 

Every organisation works for building up the profits and cash in quantity that helps in the smooth working of it and also maintains reserves for its contingent situations. In a financial year a company is involved in many monetary transactions, with different parties, leading to the development of cash flows, profit generation, loss, capital expansion etc. All this need to be recorded from time to time and presented at the end of the financial year in the form of final accounts. The provision for the preparation of the final accounts was earlier prescribed under the Companies Act 1956. But with the recent amendment in the act and incorporation of the new “Companies Act 2013” the companies now need to follow the provision laid down by the new act and prepare the accounts accordingly.The new companies act has made certain amendments in the form of some additions which need to be followed by every company for fulfilling the disclosure requirements.

 

COMPANIES ACT 2013:

 

Companies Act 2013 has replaced the Companies Act 1956 (in a partial manner) after receiving the assent of the president of India, and came into force on 12 September 2013. It is an act of the parliament which regulates incorporation of a company, responsibilities of its directors and shareholders, presentation of final accounts and its dissolution etc. The 2013 act is divided into 29 chapters containing 470 sections, unlike 658 sections in the Companies Act 1956 and has 7 schedules. The act have laid down certain changes like earlier private companies maximum members were 50, but now it has been raised to 200, unlike previously now companies need to keep a record of accounts in electronic form as well, a new concept of “one person company” and “consolidated financial accounts” has also been included in the act.

 

BRIEF DESCRIPTION OF SOME NEW INTRODUCED CONCEPTS:

 

Some of the concepts which were not considered as per Companies Act 1956, and introduced under Companies Act 2013 have been presented under-

 

1)        One Person Company:

 

One Person Company is a company registered with only one person as a member and that one person is the shareholder of that company. The OPC enjoys the rights of a private limited company like perpetual succession, common seal, separate legal entity etc. it has been classified as a private company under the Companies Act 2013.

 

2)      Corporate social responsibility clause:

 

A CSR committee of the board consisting of three or more directors, out of which at least one be the independent director, shall be constituted by every company –

 

▪Having net worth of rupees five hundred crore or more, or

▪Turnover of rupees one thousand crore or more, or

▪Net profit of rupees five crore or more during any financial year.

 

3)      Women Director:

 

At least one women director should be a part of the directors of the company, which is-▪A public company with paid up capital of rupees hundred crore or more

 

▪Public company of turnover of rupees three hundred crore or more ▪Every listed company

 

4)      Registered Values:

 

Clause 247(1) of the Companies Act 2013 states that valuation of any property, shares, debentures, stocks, goodwill or any other asset of the company or the worth of the company should be done by any person qualified for the same and registered as a valuer in such manner.

 

5)      Dormant Company:

 

In case a company is formed and registered under this act for a future project or to hold an intellectual property and has no significant accounting transaction, such a company may file an application with the registrar for obtaining the status of a dormant company.

 

6)      Fast track merger:

 

Under section 233 of this Companies Act,2013 the central government has the power to sanction all such scheme without approaching National Company Law Tribunal (powers presently exercised by the High Court). These provisions are separate from the normal provisions of merger under section 230 and 232 of this act.

 

7)      Serious Fraud Investigation Office (SFIO):

 

Clause 211 of the act deals with SFIO. This provides for the power with SFIO to arrest the person involved in certain offences with respect to the bill. Those offences shall be cognizable and the person so accused shall be released on bail in respect to the conditions mentioned in the clause of the bill.

 

8)      Electronic mode:

 

Unlike the Companies Act 1956, the companies now need to maintain the books of accounts under electronic mode, along with the hard copy of the same. The details of the service provider, IP address, location of services etc also need to be disclosed. The electronically framed books of accounts shall be made in the same format in which it was originally prepared.

 

9)      Inspection of books of accounts:

 

Permission of inspection of books of the company was not given to the directors under the Companies Act 1956. But now the books shall be open for any of the directors for inspection, as per section 128(3) of Companies Act 2013. And the manner of inspection of books of accounts is mentioned under Rule 4.

 

10)  Cash flow statement:

 

As per companies act 2013 the companies need to present the cash flow statement along with its final accounts at the end of accounting year. Cash Flow Statement has been given a status in the financial statements of company.

 

11)  Consolidation of accounts:

 

Section 129(3) of the Companies Act 2013, states that if a company has one or more subsidiaries, it shall prepare a consolidated financial statements of the company and its subsidiaries in the same manner as its own and present in front of the shareholders along with its financial statements. The company shall also attach a separate statement containing the salient features of its subsidiaries.

 

 

QUICK REVISION:

 

▪Companies Act 1956 has been replaced in partial manner by the Companies Act 2013.

▪It came into force on 12 September 2013.

▪This act is divided into 29 chapters containing 470 sections and 7 schedules.

▪One Person Company is a company registered with only one person as a member.

▪A Corporate Social Responsibility committee comprising of 3 or more directors should be set up under the new act.

▪Appointment of at least one women director is added in the CA 2013.

▪  Clause 247(1) of the Companies Act 2013 states that valuation of property shall be done only by the registered valuers.

▪Maintenance of books of accounts in electronic form is prescribed under CA 2013.

▪Section 128(3) deals with the inspection of books of accounts by any of the directors.

▪Section 129(3) states that a company having one or more subsidiaries should present consolidated financial statements.

 

FINANCIAL STATEMENTS AS PER CA 2013:

 

Financial statement is the record of the company’s transaction throughout the year. It comprises of a set of accounts that need to be presented at the end of the financial year for the use if internal as well as external users.

 

Section 128 to 138 under Chapter IX of the Companies Act 2013 deal with the preparation of accounts of companies. The definition of financial statement is not mentioned under Companies Act 1956 . But Section 2(40) of the Companies Act 2013 has defined financial statement as-

 

Financial Statement in relation to company includes-

 

a)      Balance Sheet at the end of financial year.

b)      Statement of profit and loss for the financial year.

c)      Cash flow statement (not mandatory for small scale companies, OPC’s & dormant companies) for the financial year.

d)      Statement of changes in equity, if applicable.

e)      Explanatory statements.

These financial statements need to be prepared for every financial year. Section 2(41) of the Companies Act 2013, defines financial year in relation to any company as the period ending 31st day of the March every year. Now the financial year can only be from April to March. And the companies following a different financial year need to align with the new provision within a period of two years. The only exception to this is the company which is a holding or subsidiary company incorporated outside India can have a different financial year for the purpose of consolidation of its accounts.

 

The financial statement shall be prepared in the form as provided in Schedule III. It shall be laid in the annual general meeting within six months from the end of the financial year.

 

As per Section 143 of the Companies Act 2013, the financial statements shall be signed by:

 

1)      Chairperson of the company if authorised by the board.

2)      Two directors out of which one shall be the Managing director.

3)      However, in case of one person company, only by one director.

 

GENENRAL GUIDELINES FOR THE PREPARATION OF BALANCE SHEET

 

Balance sheet is a statement of assets, liabilities and capital of an organisation. As per schedule III of the Companies Act 2013, balance sheet is prepared by the companies.

 

BALANCE SHEET (As per Schedule III to the Companies Act, 2013 applicable for the financial year commencing on or after 1.4.2011)

 

Particulars

 

Amount(Rs)

 

Previous year

 

Amount(Rs)

 

Current year

 

I. EQUITY AND LIABILITIES

(1)  Shareholders’ funds

(a)  Share capital

(b)  Reserves and surplus

(c)  Money received against share warrants

 

(2)       Share application money pending allotment

 

(3)  Non-current liabilities

(a)  Long-term borrowings

(b)  Deferred tax liabilities (net)

(c)  Other long term liabilities (d ) Long term provisions

 

(4)  Current liabilities (a)Short-term borrowings (b)Trade payables

(c ) Other current liabilities

(d)  Short-term provisions

 

TOTAL

II. ASSETS

 

(1)   Non-current assets (a)Fixed assets

 

(i)  Tangible assets (ii)Intangible assets

(iii)  Capital work-in progress

(iv) Intangible assets under development

 

(b)  Non-current Investments (c ) Deferred tax assets (net) (d)Long-term loans and advances (e ) Other non-current assets

 

(2)   Current assets

(a)  Current investments (b)Inventories

(c ) Trade receivables

(d)  Cash and cash equivalents

(e ) Short-term loans and advances

(f)    Other current assets

 

TOTAL

 

 

 

QUICK REVISION

▪Section 128 to 138 under Chapter IX of the Companies Act 2013 deal with the preparation of accounts of companies.

▪Section 2(40) defines the financial statement.

▪Section 2(41) of the Companies Act 2013, defines financial year in relation to any company as the period ending 31st day of the March every year.

▪The financial statement shall be prepared in the form as provided in Schedule III.

▪Section 143 deals with the signature of financial statements.

 

Detailed description of items in balance sheet are discussed below:

1)      Share Capital:

 

Share capital of a company means arranging the funds for its operations. Company issues its shares to raise capital. The financial treatment related to share capital is grouped under various sections.

 

●Section 49 states that call on shares of the same class should be made on uniform basis. These classes may differ due to different issue dates, different voting rights etc.

●Section 50 allows the company to accept from any member, the whole or part of amount remaining unpaid on his shares, even if company has not called up that amount.

●Under section 51 a company may pay dividend in proportion to the amount paid up on each share.

●Section 52 states that when a company receives premium amount (in cash or otherwise) on shares issued at premium, a sum equal to the aggregate amount shall be transferred to “security premium account”.

●Section 53 lays down that company cannot issue shares at discount and any share issued at discount shall be treated as void. If a company violated the section, it shall be punishable with a fine of not less than one lakh rupees or imprisonment.

 

●Any company can issue Sweat Equity Shares under section 54, if fulfils the following conditions –

 

1)  Special resolution should be passed by the company before issuing the Sweat Equity Shares.

2)   The resolution must specify the number of shares, current market price, class of directors to whom such shares are issued.

3)  Not less than one year has elapsed since the date of the issue, since the company has started the business.

4)  Regulations laid down by SEBI shall be followed by listed companies, and rules by MCA by others.

 

●   Section 55 states that no company (limited by shares) is allowed to issue irredeemable preference shares. All such shares shall be redeemable within a period not exceeding 20 years (from their issue date).

 

2)  Reserves and Surplus:

 

Reserves and surplus are the balance that is kept aside out of the profits and retained back with the company for future use. Reserve and surplus shall be classified as:

 

●   Capital Reserve ● Capital Redemption Reserve ● Debenture Redemption Reserve ● Revaluation Reserve ● Securities Premium Reserve ● Share Options Outstanding Account ● Surplus ● Other

 

Reserves.

 

 

3)      Long Term Borrowings:

Sometimes companies borrow funds from outside the business for long term investments,

 

for a longer period of time. The amount so borrowed is termed as long term borrowings.

 

●Long term borrowings shall include bonds/ debentures, term loans from banks or other  parties, deferred payment liabilities and loans and advances from related parties.

●Borrowings  shall  further  be  classified into  secured and  unsecured and  disclosed separately.

●Bonds/ debentures shall be stated in descending order of maturity or conversion (along with the rate of interest and particulars of redemption).

●Any redeemed debentures that the company can reissue shall be disclosed.

 

4)      Current Liabilities:

 

A liability is considered as current when it specifies any of the following criteria:

 

●  It is held specially for the purpose of being traded.

●  It is due to be settled within 12 months after the reporting date.

●  It is expected to be consumed/realised in the company’s normal operating cycle. Balance Sheet shall include short term borrowings, trade payables, short term provisions and other current liabilities under the head current liabilities.

 

5)      Current Assets:

 

An asset shall be classified as current when it specifies any of the following criteria:

 

●   Is expected to be realised for sale or consumption in the company’s normal operating cycle.

●  The purpose for its acquisition is primarily for trade.

●  Expected to be realised within twelve months after the reporting date.

●  It is cash/cash equivalent unless it is restricted from being exchanged.

 

Current assets comprise of inventories, trade receivables, cash and cash equivalents, short term loans and advances and other current assets.

 

Inventories refer to raw materials, work in progress, finished goods, stock in trade, loose tools and stores and spares. Trade receivables means the amounts billed by business to its customers when it delivers goods and services to them. Short term loans and advances refer to the amount borrowed for a short period of time from lenders or bank.

 

6)      Non Current Assets:

 

The head Non Current Assets is sub classified into Fixed assets Non-current investments Deferred tax assets

 Long term loans and advances and Other non-current assets.

 

Fixed assets include land, building, plant and equipment, vehicles, office equipment etc. In the balance sheet fixed asset is categorised as tangible, intangible, capital work in progress and intangible assets under development. The assets under lease shall be separately specified under each class of asset.

 

Non – current investments shall be classified as trade investments and other investments and further classified as investment property, investment in preference shares, investment in bonds/debentures, investment in government securities etc.

 

Long term loan and advances shall be classified as capital advances, security deposits, loans and advances to related parties etc. The above can also be sub classified into secured (considered good), unsecured (considered good) and doubtful.

 

Other non-current assets consist of long term trade receivables (including trade receivables on deferred credit terms).

 

The assets and liabilities side of the balance sheet are totalled up and both the sides tally with equal amounts.

 

QUICK REVISION

 

▪The financial treatment related to share capital is grouped under section 49 to 55.

▪Reserve and surplus shall be classified as Capital Reserve, Capital Redemption Reserve, Debenture Redemption Reserve, Revaluation Reserve, Securities Premium Reserve, Share Options Outstanding Account, Surplus and Other Reserves.

  • ▪ Bonds/ debentures shall be stated in descending order of maturity or conversion (along with the rate of interest and particulars of redemption), under the head long term borrowings.
  • ▪ Current assets and liabilities are considered as current if they fulfil any of the conditions laid down under the companies act 2013.

 

SUMMARY

 

After the assent of the president of India the Company Bill 2012 was accepted and on 12 September 2013, the Companies Act 2013 was formed replacing the old Companies Act 1956. This act is the beginning of a new era and as it lays emphasis on following the new logical concepts, it is proving to be a difficult task for the companies to follow. The 2013 act is divided into 29 chapters containing 470 sections, unlike 658 sections in the Companies Act 1956 and has 7 schedules. The act lays down the provisions from the incorporation of the company, its registration, final accounts preparation to its mergers and dissolution. Every company need to follow the new companies act and make efforts in order to completely blend with the changes.

 

Section 128 to 138 under Chapter IX of the Companies Act 2013 deals with the preparation and presentation of final accounts of a company. For the first time Financial Statements have been defined under Section 2(40) as laid down an additional point of including Cash Flow Statement in its final accounts. The new act has added up to new concepts such as consolidated financial statements, one person company, corporate social responsibility clause, fast track merger, dormant company, presentation of cash flow statement along with the final accounts etc.

 

Apart from the above mentioned changes, the new act lays down the preparation of final accounts by following the format defined under schedule III. The act also defines the provisions regarding the financial treatment of balance sheet items. Not only this, Section 143 of the Companies Act 2013, states that the financial statements shall be signed by: Chairperson of the company if authorised by the board, two directors out of which one shall be the Managing director, however in case of one person company, only by one director.

 

Concluding that CA 2013, is a new beginning towards a well globalised accounting society and well prepared and presented   final accounts.

you can view video on Form of Balance Sheet of Companies

SUGGESTED READINGS:

  • Mukherjee A & Hanif M (2003) “Financial Accounting”. Tata Mc Graw Hill Education Private Limited NewDelhi.
  • Singh Baljinder & Mahajan R.K (2014), “Accountancy-I”. New Delhi- 110 002: Kalyani Publishers
  • Singla.R.S (2015), “Corporate Accounting”. VK Global Publications Pvt. Ltd. New Delhi
  • Siddiqui A.S”(2002) “Comprehensive Financial Accounting” Laxmi Publications Ltd, 22, Golden House, Daryaganj, New Delhi.
  • Tulsian . P.C (2014) “Financial Accounting”. Dorling Kindersley Pvt Ltd., licenses of Pearson Education in South Asia.

 

 

 

Points to Ponder:

 

1) After the assent of the president of India the Company Bill 2012 was accepted and on 12 September 2013, the Companies Act 2013 was formed replacing the old Companies Act 1956.

2) The 2013 act is divided into 29 chapters containing 470 sections, unlike 658 sections in the Companies Act 1956 and has 7 schedules.

3) The act lays down the provisions from the incorporation of the company, its registration, final accounts preparation to its mergers and dissolution.

4) Section 128 to 138 under Chapter IX of the Companies Act 2013 deals with the preparation and presentation of final accounts of a company

5) For the first time Financial Statements have been defined under Section 2(40) as laid down an additional point of including Cash Flow Statement in its final accounts.