FINANCIAL STATEMENTS LIMITED COMPANY

OBJECTIVES FORMATFORMAT- Schedule VI ACCOUNTING STANDARDS CLASSIFICATION OF ITEMS IN BALANCE SHEET TREATMENT OF VARIOUS ITEMS APPEARING IN TRIAL BALANCE SELECTED ADJUSTMENTS IN COMPANY FINAL ACCOUNTS SPECIAL POINTS TO BE CONSIDERED
by Ms. Poonam Namjoshi

OBJECTIVES
To provide financial information which is useful to the decision makers To provide financial information to predict cash flow in future. To provide information about assets, liabilities and changes in resources and claim.
by Ms. Poonam Namjoshi

Format Schedule VI
Balance sheet Income Statement

by Ms. Poonam Namjoshi

ACCOUNTING STANDARDS

by Ms. Poonam Namjoshi

ASAS-1 Disclosure of Accounting Policies.

Disclosure of Accounting Policy: Any Change in the policies and its effects should be disclosed.

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ASAS-2 Valuation Of Inventories

Valuation of inventories should be lower of cost or Net realizable value. The method of valuation should be weighted average or FIFO. For manufactured goods, absorption costing method should be applied for ascertaining the cost.

by Ms. Poonam Namjoshi

ASAS-6 Depreciation
The basis of charging depreciation should be consistently followed and disclosed. If there is any change, its effect should be disclosed. Schedule XIV under Companies Act permits WDV or SL method only. The rates of depreciation of various assets are also prescribed
by Ms. Poonam Namjoshi

ASAS-9 Revenue Recognition

It lays down the principle of recognizing revenue i.e. income and expenses on accordance with accrual method.

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ASAS-4 Contingencies and Event occurring after Balance Sheet.

Concept of conservatism should be followed for disclosure.

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ASAS-5 Prior Period Extra Ordinary Items

The items should be disclosed if material.

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ASAS-10 Fixed assets

It lays down the method of disclosure of fixed assets in accordance with the Schedule VI requirements Schedule of Fixed Assets

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OTHER AS
Construction Contracts Research and Development Changes in Foreign Exchange Rate Government grants Retirement Benefits Borrowing Costs Income Tax
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AS-7 ASAS-8 ASAS-11 ASAS-20 ASAS-15 ASAS-16 ASAS-22 AS-

ASAS-13 Investments
It lays down the method for disclosure of investments. It requires classification of investments as current and long term. And comply with Schedule VI requirements.

by Ms. Poonam Namjoshi

Classification of Items In Balance sheet

Items
Goodwill Live stock vehicles

Major Heads
Fixed assets Fixed assets Fixed assets

Sub- Head SubCurrent Assets

Patents, Trade Fixed assets Marks, designs Furniture& Fittings Fixed assets Capital Work In Progress Work In Progress Fixed assets Current Assets Loans and advances
by Ms. Poonam Namjoshi

Classification of Items In Balance sheet

Items
Loose tools Bills of Exchange Interest Accrued on investments Prepaid Insurance Stores and Spare parts Advances to suppliers

Major Heads

Sub- Head Sub-

Current Assets Loans Current Assets and advances Current Assets Loans Loans and advances and advances Current Assets Loans Current Assets and advances Current Assets Loans Loans and advances and advances Current Assets Loans Current Assets and advances Current Assets Loans Loans and advances and advances
by Ms. Poonam Namjoshi

Classification of Items In Balance sheet

Items
Acceptances

Major Heads
Current Liabilities and provisions

Sub- Head SubCurrent Liability Provision Current Liability Current Liability Current Liability Current Liability

Provision for taxation Current Liabilities and provisions Unclaimed dividend Current Liabilities and provisions Short term Loans and advances Advances from customers Interest accrued but not due on unsecured loans Current Liabilities and provisions Current Liabilities and provisions Current Liabilities and provisions
by Ms. Poonam Namjoshi

Classification of Items In Balance sheet

Items
Debenture Redemption Fund Loans from Bank

Major Heads
Reserves and surplus Secured Loans

Sub- Head Sub-

Interest accrued and Secured Loans due on Debentures Premium on redemption of debentures Fixed deposits Proposed dividend Secured loans

Unsecured loans Current Liabilities and Provisions

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Provision

Classification of Items In Balance sheet

Items
Capital reserve Calls Unpaid Forfeited shares account Debenture suspense A/c Brokerage on Issue of Shares Securities premium Loss on Issue of Debentures

Major Heads
Reserves & Surplus Share Capital Share capital Miscellaneous expenditure Miscellaneous expenditure Reserves & Surplus Miscellaneous expenditure
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Sub- Head SubSubscribed Capital (Deduct) Subscribed Capital (add) -

Classification of Items In Balance sheet Items Major Heads Sub- Head SubDeposit with custom Authority Current Assets Loans Loans and advances and advances Investment in shares Investments and debentures Investment in immovable property Investment -

Preliminary expenses Miscellaneous expenditure Underwriting Commission Miscellaneous expenditure

Discount on Issue of Miscellaneous expenditure Shares

by Ms. Poonam Namjoshi

Classification of Items In Balance sheet Items

Calls in advance Uncalled liability on shares partly paid Arrears of Fixed cumulative dividend Claims against Company not acknowledged as debt

Major Heads
Current Liabilities and provisions Footnote to balance sheet as contingent liability Footnote to balance sheet as contingent liability Footnote to balance sheet as contingent liability
by Ms. Poonam Namjoshi

Sub- Head SubCurrent Liability -

Special Points to Remember

Depreciation at a specified percentage as per specified method should be computed with reference to adjustments regarding purchase, sale of assets and omission of transactions relating to the fixed assets. Provision for bad debts and doubtful debts at a specified rate should be computed after giving effect to other adjustments regarding debtors. Such as additional bad debts, goods sent on approval to customers etc.
by Ms. Poonam Namjoshi

Special Points to Remember Contd

Provision for discount on debtors should be computed on debtors remaining after providing for Bad and doubtful debts Provision for incomes/ expenses should be made for the full period where information is available directly or indirectly.

by Ms. Poonam Namjoshi

Special Points to Remember Contd

Provision for income tax should be made at a specified rate on net profit after charging all expenses including managers remuneration. Managerial Remuneration may be certain percentage of net profit. if provision for both managerial remuneration and income tax is required to be made, firstly managerial remuneration should be provided and then on remaining profits provision for income tax is to be made.
by Ms. Poonam Namjoshi

Special Points to Remember Contd

When dividend on Equity share capital is declared effect should be give for: 1. Dividend on Preference Share Capital. 2. Transfer of profit to reserve. 3. Dividend tax

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Some Adjustments
Corporate Income Tax

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Corporate Income Tax

1. Advance Tax
As per the provisions of Income Tax Act 1961, the Companies are required to pay income tax on corporate income in advance. During the current year, companies deposit Income Tax in advance on the estimated income of the year. At the time of Payment of Advance tax the following entry is passed Advance Tax A/c Dr. To Bank A/c
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Corporate Income Tax

2. Provision For Tax At the end of the year, provision for income tax is created by applying the prescribed rte on taxable income. The following entry is passed: Profit & Loss A/c Dr. To Provision For Taxation
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Note:
It should be noted that till the assessment of that year by Income Tax Authorities, the balance sheet of the company shows advance tax after adjustment of provision for tax on asset side under the head loans and advances or provision for taxation after the adjustment of Advance tax as part of provision on liability side as per AS-22 issued by ICAI on Accounting for AStaxes on Income.
by Ms. Poonam Namjoshi

Corporate Income Tax

3. Completion of Assessment.
On completion of assessment in the year of assessment the gross tax liability is decided by the income tax officer and the copy of the assessment order is sent to the company. In this case the following steps are taken

by Ms. Poonam Namjoshi

Completion of Assessment.
a. Compare the amount of gross tax
liability and provision for taxation and find out the difference. The difference is to be transferred to profit and loss account of the year in which assessment takes place. However the item is shown as Prior Period Item as per AS-5 issued ASby ICAI The Difference may be either Surplus or Deficit which is transferred to Profit and Loss Account
by Ms. Poonam Namjoshi

Completion of Assessment.
b. Compare the gross tax liability with advance
paid. The difference may be either refund or tax payable. If the advance tax paid is more than the gross tax liability, the excess is considered as refund which is shown under Current assets Refund: Tax refund A/c Dr xx To Provision for Taxation xx

by Ms. Poonam Namjoshi

b) Contd
If the advance tax paid is less than the gross tax liability, the excess tax liability over advance tax paid is considered as tax liability and is shown under current liabilities Tax Payable: Prov. For Taxation A/c Dr. xx To Tax payable A/c xx

by Ms. Poonam Namjoshi

PROVISION FOR TAXATION

DEFICIT/ SURPLUS

GROSS TAX LIABILITY

REFUND/ TAX PAYABLE

ADVANCE PAYMENT OF TAX

P/L A/C PRIOR PERIOD ITEM

BALANCE SHEET

REFUND

TAX PAYABLE

CURRENT ASSETS LOANS AND ADVANCES

by Ms. Poonam Namjoshi

CURRENT LIABILITIES

Assessment under Dispute

Illustration: Show necessary journal entries for disclosure of relevant items Trial Balance as at 31.3.02 Dr. Cr. Advance tax 2000-01 2000200000 Advance tax2001-02 tax2001130000 Provision for incomeTax2000-01 incomeTax2000180000 Additional information 1. The income tax Assessment for 2000-01 has been completed 2000during the year and the tax liability has been fixed at Rs.220000. No effect has been given to this in the accounts. 2. Provision for tax to be made for the year 2001-02 is 2001Rs.120000
by Ms. Poonam Namjoshi

Journal
Profit and Loss A/c Dr. 120000 To Provision for Tax 120000 (Being tax provided for 2001-02) 2001P/L Appropriation A/c Dr. 40000 To. Provision for Income tax 40000 (being deficit provision for prior period) Provision for Tax A/c Dr. 20000 To Income tax Payable 20000 (Being tax payable for the year)
by Ms. Poonam Namjoshi

Provision for Tax A/c(2000-01) To Advance tax(00-01) 200000 By Balance B/d 1800000 To Income tax Payable By P/L A/c 40000 20000 (Bal Fig.)

Profit /Loss Account for year ended 31.3.2002 To provision for Tax 120000 To prior period item 40000

Balance sheet as on 31.3.02 Liabilities Assets Current liabilities Loans and advances Income tax payable 20000 Advance tax 130000 Less: Provision120000
by Ms. Poonam Namjoshi

10000

Transfer o Reserve
Rate of Dividend Exceeds 10% but not 12.5% of the paid up capital Exceeds 12.5% But not 15% of the paid up capital Exceeds 15% but not 20% of paid up capital Exceeds 20% Transfer to reserve 2.5% of current profit

1. 2. 3. 4.

5% of current profit 7.5% of current profit 10% of current profit.

by Ms. Poonam Namjoshi