{"id":182,"date":"2018-10-11T07:04:00","date_gmt":"2018-10-11T07:04:00","guid":{"rendered":"http:\/\/mgmtp02.epgpbooks.inflibnet.ac.in\/?post_type=chapter&p=182"},"modified":"2019-01-03T10:54:17","modified_gmt":"2019-01-03T10:54:17","slug":"form-of-balance-sheet-of-companies","status":"publish","type":"chapter","link":"https:\/\/ebooks.inflibnet.ac.in\/mgmtp02\/chapter\/form-of-balance-sheet-of-companies\/","title":{"rendered":"Form of Balance Sheet of Companies"},"content":{"raw":"
\"epgp<\/a>\r\n<\/span><\/div>\r\n
\r\n\r\n \r\n\r\n \r\n\r\nLEARNING OBJECTIVES:<\/strong>\r\n\r\n \r\n

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.<\/p>\r\n \r\n\r\nINTRODUCTION:<\/strong>\r\n\r\n \r\n

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 \u201cCompanies Act 2013\u201d 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.<\/span><\/p>\r\n\r\n<\/div>\r\n

\r\n\r\n \r\n\r\nCOMPANIES ACT 2013:<\/strong>\r\n\r\n \r\n

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 \u201cone person company\u201d and \u201cconsolidated financial accounts\u201d has also been included in the act.<\/p>\r\n \r\n\r\nBRIEF DESCRIPTION OF SOME NEW INTRODUCED CONCEPTS:<\/strong>\r\n\r\n \r\n

Some of the concepts which were not considered as per Companies Act 1956, and introduced under Companies Act 2013 have been presented under-<\/p>\r\n \r\n\r\n1)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <\/em>One Person Company:<\/em>\r\n\r\n \r\n

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.<\/p>\r\n \r\n\r\n2)\u00a0\u00a0\u00a0\u00a0\u00a0 <\/em>Corporate social responsibility clause:<\/em>\r\n\r\n\u00a0<\/em>\r\n

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 \u2013<\/p>\r\n\u00a0<\/em>\r\n\r\n\u25aaHaving net worth of rupees five hundred crore or more, or\r\n\r\n\u25aaTurnover of rupees one thousand crore or more, or\r\n\r\n\u25aaNet profit of rupees five crore or more during any financial year.\r\n\r\n\u00a0<\/em>\r\n\r\n3)\u00a0\u00a0\u00a0\u00a0\u00a0 <\/em>Women Director:<\/em>\r\n\r\n\u00a0<\/em>\r\n

At least one women director should be a part of the directors of the company, which is-\u25aaA public company with paid up capital of rupees hundred crore or more<\/p>\r\n\u00a0<\/em>\r\n\r\n\u25aaPublic company of turnover of rupees three hundred crore or more \u25aaEvery listed company\r\n\r\n\u00a0<\/em>\r\n\r\n4)\u00a0\u00a0\u00a0\u00a0\u00a0 <\/em>Registered Values:<\/em>\r\n\r\n\u00a0<\/em>\r\n

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.<\/p>\r\n\u00a0<\/em>\r\n\r\n5)\u00a0\u00a0\u00a0\u00a0\u00a0 Dormant Company:<\/em>\r\n\r\n \r\n

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.<\/p>\r\n \r\n\r\n6)\u00a0\u00a0\u00a0\u00a0\u00a0 <\/em>Fast track merger:<\/em>\r\n\r\n\u00a0<\/em>\r\n

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\u00a0presently exercised by the High Court). These provisions are separate from the normal provisions of merger under section 230 and 232 of this act.<\/span><\/p>\r\n\r\n<\/div>\r\n

\r\n\r\n \r\n\r\n7)\u00a0\u00a0\u00a0\u00a0\u00a0 <\/em>Serious Fraud Investigation Office (SFIO):<\/em>\r\n\r\n\u00a0<\/em>\r\n

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.<\/p>\r\n\u00a0<\/em>\r\n\r\n8)\u00a0\u00a0\u00a0\u00a0\u00a0 <\/em>Electronic mode:<\/em>\r\n\r\n\u00a0<\/em>\r\n

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.<\/p>\r\n\u00a0<\/em>\r\n\r\n9)\u00a0\u00a0\u00a0\u00a0\u00a0 <\/em>Inspection of books of accounts:<\/em>\r\n\r\n\u00a0<\/em>\r\n

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.<\/p>\r\n\u00a0<\/em>\r\n\r\n10)\u00a0 <\/em>Cash flow statement:<\/em>\r\n\r\n\u00a0<\/em>\r\n

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.<\/p>\r\n\u00a0<\/em>\r\n\r\n11)\u00a0 <\/em>Consolidation of accounts:<\/em>\r\n\r\n\u00a0<\/em>\r\n

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.<\/p>\r\n \r\n\r\n \r\n\r\nQUICK REVISION:<\/strong>\r\n\r\n \r\n

\u25aaCompanies Act 1956 has been replaced in partial manner by the Companies Act 2013.<\/p>\r\n

\u25aaIt came into force on 12 September 2013.<\/p>\r\n

\u25aaThis act is divided into 29 chapters containing 470 sections and 7 schedules.<\/p>\r\n

\u25aaOne Person Company is a company registered with only one person as a member.<\/p>\r\n

\u25aaA Corporate Social Responsibility committee comprising of 3 or more directors should be set up under the new act.<\/p>\r\n

\u25aaAppointment of at least one women director is added in the CA 2013.<\/p>\r\n

\u25aa\u00a0 Clause 247(1) of the Companies Act 2013 states that valuation of property shall be done only by the registered valuers.<\/p>\r\n

\u25aaMaintenance of books of accounts in electronic form is prescribed under CA 2013.<\/p>\r\n

\u25aaSection 128(3) deals with the inspection of books of accounts by any of the directors.<\/p>\r\n

\u25aaSection 129(3) states that a company having one or more subsidiaries should present consolidated financial statements.<\/p>\r\n \r\n\r\nFINANCIAL STATEMENTS AS PER CA 2013:<\/strong>\r\n\r\n<\/div>\r\n \r\n

Financial statement is the record of the company\u2019s 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.<\/span><\/p>\r\n \r\n

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-<\/span><\/p>\r\n\r\n

\r\n\r\n \r\n\r\nFinancial Statement in relation to company includes-\r\n\r\n \r\n

a)\u00a0\u00a0\u00a0\u00a0\u00a0 Balance Sheet at the end of financial year.<\/p>\r\n

b)\u00a0\u00a0\u00a0\u00a0\u00a0 Statement of profit and loss for the financial year.<\/p>\r\n

c)\u00a0\u00a0\u00a0\u00a0\u00a0 Cash flow statement (not mandatory for small scale companies, OPC\u2019s & dormant companies) for the financial year.<\/p>\r\n

d)\u00a0\u00a0\u00a0\u00a0\u00a0 Statement of changes in equity, if applicable.<\/p>\r\n

e)\u00a0\u00a0\u00a0\u00a0\u00a0 Explanatory statements.<\/p>\r\n

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.<\/p>\r\n \r\n

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.<\/p>\r\n \r\n\r\nAs per Section 143 of the Companies Act 2013, the financial statements shall be signed by:\r\n\r\n \r\n

1)\u00a0\u00a0\u00a0\u00a0\u00a0 Chairperson of the company if authorised by the board.<\/p>\r\n

2)\u00a0\u00a0\u00a0\u00a0\u00a0 Two directors out of which one shall be the Managing director.<\/p>\r\n

3)\u00a0\u00a0\u00a0\u00a0\u00a0 However, in case of one person company, only by one director.<\/p>\r\n \r\n\r\nGENENRAL GUIDELINES FOR THE PREPARATION OF BALANCE SHEET<\/strong>\r\n\r\n \r\n

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.<\/p>\r\n \r\n\r\nBALANCE SHEET (As per Schedule III to the Companies Act, 2013 applicable for the financial year commencing on or after 1.4.2011)<\/em>\r\n\r\n<\/div>\r\n

\r\n\r\n \r\n\r\nParticulars\r\n\r\n \r\n\r\nAmount(Rs)\r\n\r\n \r\n\r\nPrevious year\r\n\r\n \r\n\r\nAmount(Rs)\r\n\r\n \r\n\r\nCurrent year\r\n\r\n<\/div>\r\n \r\n
\r\n\r\nI. EQUITY AND LIABILITIES<\/strong>\r\n\r\n(1)\u00a0 <\/strong>Shareholders\u2019 funds<\/strong>\r\n\r\n(a)\u00a0 Share capital\r\n\r\n(b)\u00a0 Reserves and surplus\r\n\r\n(c)\u00a0 Money received against share warrants\r\n\r\n \r\n\r\n(2)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <\/strong>Share application money pending allotment<\/strong>\r\n\r\n\u00a0<\/strong>\r\n\r\n(3)\u00a0 <\/strong>Non-current liabilities<\/strong>\r\n\r\n(a)\u00a0 Long-term borrowings\r\n\r\n(b)\u00a0 Deferred tax liabilities (net)\r\n\r\n(c)\u00a0 Other long term liabilities (d ) Long term provisions\r\n\r\n \r\n\r\n(4)\u00a0 <\/strong>Current liabilities <\/strong>(a)Short-term borrowings (b)Trade payables\r\n\r\n(c ) Other current liabilities\r\n\r\n(d)\u00a0 Short-term provisions\r\n\r\n \r\n\r\nTOTAL<\/strong>\r\n\r\nII. ASSETS<\/strong>\r\n\r\n \r\n\r\n(1)\u00a0\u00a0 <\/strong>Non-current assets <\/strong>(a)Fixed assets<\/em>\r\n\r\n\u00a0<\/strong>\r\n\r\n(i)\u00a0 Tangible assets (ii)Intangible assets\r\n\r\n(iii)\u00a0 Capital work-in progress\r\n\r\n(iv) Intangible assets under development\r\n\r\n \r\n\r\n(b)\u00a0 <\/em>Non-current Investments (c ) Deferred tax assets (net) (d)Long-term loans and advances (e ) Other non-current assets<\/em>\r\n\r\n\u00a0<\/em>\r\n\r\n(2)\u00a0\u00a0 <\/strong>Current assets<\/strong>\r\n\r\n(a)\u00a0 Current investments (b)Inventories\r\n\r\n(c ) Trade receivables\r\n\r\n(d)\u00a0 Cash and cash equivalents\r\n\r\n(e ) Short-term loans and advances\r\n\r\n(f)\u00a0\u00a0\u00a0 Other current assets\r\n\r\n \r\n\r\nTOTAL<\/strong>\r\n\r\n \r\n\r\n \r\n\r\n \r\n\r\nQUICK REVISION<\/strong>\r\n

\u25aaSection 128 to 138 under Chapter IX of the Companies Act 2013 deal with the preparation of accounts of companies.<\/p>\r\n

\u25aaSection 2(40) defines the financial statement.<\/p>\r\n

\u25aaSection 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.<\/p>\r\n

\u25aaThe financial statement shall be prepared in the form as provided in Schedule III.<\/p>\r\n\u25aaSection 143 deals with the signature of financial statements.\r\n\r\n \r\n\r\nDetailed description of items in balance sheet are discussed below:<\/em>\r\n\r\n<\/div>\r\n

\r\n\r\n1)\u00a0\u00a0\u00a0\u00a0\u00a0 <\/em><\/strong>Share Capital:<\/em><\/strong>\r\n\r\n\u00a0<\/em><\/strong>\r\n

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.<\/p>\r\n \r\n

\u25cfSection 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.<\/p>\r\n

\u25cfSection 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.<\/p>\r\n

\u25cfUnder section 51 a company may pay dividend in proportion to the amount paid up on each share.<\/p>\r\n

\u25cfSection 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 \u201csecurity premium account\u201d.<\/p>\r\n

\u25cfSection 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.<\/p>\r\n \r\n

\u25cfAny company can issue Sweat Equity Shares under section 54, if fulfils the following conditions \u2013<\/p>\r\n \r\n

1)\u00a0 Special resolution should be passed by the company before issuing the Sweat Equity Shares.<\/p>\r\n

2)\u00a0\u00a0 The resolution must specify the number of shares, current market price, class of directors to whom such shares are issued.<\/p>\r\n

3)\u00a0 Not less than one year has elapsed since the date of the issue, since the company has started the business.<\/p>\r\n

4)\u00a0 Regulations laid down by SEBI shall be followed by listed companies, and rules by MCA by others.<\/p>\r\n \r\n\r\n\u25cf\u00a0\u00a0 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).\r\n\r\n \r\n\r\n2)\u00a0 <\/em><\/strong>Reserves and Surplus:<\/em><\/strong>\r\n\r\n \r\n\r\nReserves 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:\r\n\r\n \r\n\r\n\u25cf\u00a0\u00a0 Capital Reserve \u25cf Capital Redemption Reserve \u25cf Debenture Redemption Reserve \u25cf Revaluation Reserve \u25cf Securities Premium Reserve \u25cf Share Options Outstanding Account \u25cf Surplus \u25cf Other\r\n\r\n \r\n\r\nReserves.\r\n\r\n \r\n\r\n \r\n\r\n3)\u00a0\u00a0\u00a0\u00a0\u00a0 <\/em><\/strong>Long Term Borrowings:<\/em><\/strong>\r\n\r\n<\/div>\r\n

\r\n\r\nSometimes companies borrow funds from outside the business for long term investments,\r\n\r\n \r\n\r\nfor a longer period of time. The amount so borrowed is termed as long term borrowings.\r\n\r\n \r\n

\u25cfLong term borrowings shall include bonds\/ debentures, term loans from banks or other\u00a0 parties, deferred payment liabilities and loans and advances from related parties.<\/p>\r\n

\u25cfBorrowings\u00a0 shall\u00a0 further\u00a0 be\u00a0 classified into\u00a0 secured and\u00a0 unsecured and\u00a0 disclosed separately.<\/p>\r\n

\u25cfBonds\/ debentures shall be stated in descending order of maturity or conversion (along with the rate of interest and particulars of redemption).<\/p>\r\n

\u25cfAny redeemed debentures that the company can reissue shall be disclosed.<\/p>\r\n \r\n\r\n4)\u00a0\u00a0\u00a0\u00a0\u00a0 <\/em><\/strong>Current Liabilities:<\/em><\/strong>\r\n\r\n\u00a0<\/em><\/strong>\r\n\r\nA liability is considered as current when it specifies any of the following criteria:\r\n\r\n\u00a0<\/em><\/strong>\r\n\r\n\u25cf\u00a0 It is held specially for the purpose of being traded.\r\n\r\n\u25cf\u00a0 It is due to be settled within 12 months after the reporting date.\r\n\r\n\u25cf\u00a0 It is expected to be consumed\/realised in the company\u2019s normal operating cycle. Balance Sheet shall include short term borrowings, trade payables, short term provisions and other current liabilities under the head current liabilities.\r\n\r\n \r\n\r\n5)\u00a0\u00a0\u00a0\u00a0\u00a0 <\/em><\/strong>Current Assets:<\/em><\/strong>\r\n\r\n\u00a0<\/em><\/strong>\r\n\r\nAn asset shall be classified as current when it specifies any of the following criteria:\r\n\r\n\u00a0<\/em><\/strong>\r\n

\u25cf\u00a0\u00a0 Is expected to be realised for sale or consumption in the company\u2019s normal operating cycle.<\/p>\r\n

\u25cf\u00a0 The purpose for its acquisition is primarily for trade.<\/p>\r\n

\u25cf\u00a0 Expected to be realised within twelve months after the reporting date.<\/p>\r\n

\u25cf\u00a0 It is cash\/cash equivalent unless it is restricted from being exchanged.<\/p>\r\n \r\n

Current assets comprise of inventories, trade receivables, cash and cash equivalents, short term loans and advances and other current assets.<\/p>\r\n \r\n

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.<\/p>\r\n \r\n\r\n6)\u00a0\u00a0\u00a0\u00a0\u00a0 <\/em><\/strong>Non Current Assets:<\/em><\/strong>\r\n\r\n\u00a0<\/em><\/strong>\r\n

The head Non Current Assets is sub classified into Fixed assets Non-current investments Deferred tax assets<\/p>\r\n\u00a0<\/em><\/strong>Long term loans and advances and Other non-current assets.\r\n\r\n\u00a0<\/em><\/strong>\r\n

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.<\/p>\r\n\u00a0<\/em><\/strong>\r\n

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.<\/p>\r\n\r\n<\/div>\r\n \r\n

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.<\/p>\r\n \r\n

Other non-current assets consist of long term trade receivables (including trade receivables on deferred credit terms).<\/p>\r\n \r\n\r\nThe assets and liabilities side of the balance sheet are totalled up and both the sides tally with equal amounts.\r\n\r\n \r\n\r\nQUICK REVISION<\/strong>\r\n\r\n \r\n

\u25aaThe financial treatment related to share capital is grouped under section 49 to 55.<\/p>\r\n

\u25aaReserve 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.<\/p>\r\n\r\n