FINANCIAL STATEMENTS.pdf class 12 accounts

accounts

1. Chapter - 1
Financial Statements
of Companies
Accountancy Class 12
Financial Statements

2. Meaning of Financial Statements
As per section 2 (40) of the Companies Act, 2013, "Financial
Statements" in relation to a company, include the following :
Financial statements are the end products of accounting process.
They provide about the profitability and the financial position of
a business.
Explanatory notes
A statement of changes in equity, if applicable; and
Cash flow statement for the financial year;
A statement of profit and loss for the financial year;
A balance sheet as at the end of the financial year;

3. Financial Year
Section 129 (1) of the Companies Act 2013, requires that the financial
statements of a Company
a)Shall give a true and fair view of the state of affairs of the company,
b)Shall comply with the accounting standards notified under section 133 and
c)Shall be in the prescribed form given in schedule III.
The prescribed format for the preparation of balance sheet has been
given in Part I of Schedule III and prescribed form for the preparation
of Statement of Profit & Loss has been given in Part II of Schedule III.
As per Section 2 (41) of the Companies Act, 2013, all companies are required
to have a uniform financial year which shall be a period from 1st April to 31st
March every year.
Values that a Company should observe while preparing financial statements :

4. 1)To present a true and fair view of the
financial performance (i.e. profit/loss) of the
business;
2)To present a true and fair view of the
financial position (i.e. Assets/Equity &
Liabilities) of the business.
Characteristics of
Financial Statements
1)Financial statements are related to past
period and hence are historical documents.
2)They are expressed in terms of money.
3)Financial statements show profitability
through Statement of Profit and Loss and
financial position through Balance Sheet.
Objectives of
Preparing Financial
Statements

5. Characteristics of Balance Sheet
1)It portrays the relationship between Equity &
Liabilities and Assets. Total of Equity &
Liabilities side is always equal to the assets
side.
2)It is prepared on a particular date and not for
a period. It is true only for the date on which it
is prepared because even a single transaction
would cause a change in assets and liabilities.
3)It shows the financial position of the business
according to the going concern concept.
4)It is not based on absolute facts but is
influenced by accounting assumptions and
personal judgements.

6. Characteristics of Statement of Profit and Loss
1)It matches the revenues and
expenses of an enterprise for a
particular period in order to
determine the profit earned or loss
suffered during the period.
2)It is prepared for a particular
period and not on a particular
date.
3)It is prepared for a past period and
hence it is a historical document.

7. The term recorded facts means that the data used for
preparing financial statements are drawn from accounting
records.
Recorded
Facts
Accounting conventions imply certain fundamental
accounting principles which have gained wide
acceptance and which are followed while
preparing financial statements.
Accounting
Conventions
Nature of Financial Statements
Even though certain accounting conventions are followed
while preparing the financial statements, still personal
judgement of the accountant plays a decisive role in
accounting.
Personal
Judgements

8. Schedule III for preparing Balance Sheet and
Statement of Profit and Loss
Balance Sheet and Statement of Profit and Loss of a
Company must be prepared as per the format given in
Schedule III.
Schedule III does not offer any horizontal format.
The New Vertical Format is as follows :

9. Name of the Company ………………
Balance Sheet as at ………………….
Particulars Note
No.
Figures as at the end of
current reporting period
Figures as at the end of the
previous reporting period
1 2 3 4
I. EQUITY & LIABILITIES :
1)Shareholders’ Funds
a)Share capital
b)Reserves & 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
Part I
FORM OF BALANCE SHEET

10. ₹ ₹
1) Share capital
Authorized capital :
…………………… Equity Shares of ₹ ……… each
…………………… Preference Shares of ₹ …… each
Issued Capital :
………………… Equity Shares of ₹ …… each
………………… Preference Shares of ₹ …… each
Subscribed Capital :
Subscribed and Fully paid Capital :
……………… Equity shares of ₹ …… each
……………… Preference Shares of ₹ …… each
(Of the above shares …… Shares are allotted as fully paid-up
pursuant to a contract without payments being received in cash)
Subscribed but not fully paid Capital :
……… Shares of ₹ …… each, ₹ …… per share called-up ₹ …………
Less : Calls in Arrears :
i.By Directors and Officers of the Company ₹ …………
ii.By Others ₹ …………
Add : Forfeited shares : ₹ …………



00000


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00000





………...

11. Classification of liabilities and assets may be summarized as follows :
Examination Notes
A.NON-CURRENT LIABILITIES shall include the liabilities due after one year. It shall include the following :
Long-term Borrowings : Such as Debentures and Bonds issued by the Company, Loan from Bank, Loan from other
parties. Public Deposits (Unless specified, it will be assumed that deposits are for more than one year.)
Deferred Tax Liabilities.
Other Long term Liabilities : Such as Premium Payable on Redemption of Debentures; Premium Payable on
Redemption of Preference shares.
Long-term Provisions : Such as Provision for Employee Benefits, Provision for Provident Fund, Provision for
Warranties.
B.CURRENT LIABILITIES shall include the liabilities due within one year. It shall include the following :
Short-term Borrowings : Such as Bank Overdraft, Cash Credit.
Trade Payables : Sundry creditors and Bills Payable will be termed Trade Payables.
Other Current Liabilities : Such as
a)Current Maturities of Long Term Debts;
b)Interest accrued but not due on borrowings;
c)Interest accrued and due on borrowings;
d)Income received in advance;
e)Unpaid dividends; Unclaimed Dividends;
f)Outstanding expenses;
g)Calls in advance and interest accrued thereon.
Short-term Provisions : Such as
a)Provision for Tax;
b)Provision for Doubtful Debts

12. C.NON-CURRENT ASSETS shall include the assets held for more than one year. It shall include
the following :
Fixed Assets
a)Tangible Assets : Such as Land, Buildings, Plant, Furniture & Fixtures, Live Stock,
Computers, Vehicles, Office Equipments, etc.
b)Intangible Assets : Such as Goodwill, Patents, Computer Software, etc.
c)Capital work in Progress
d)Intangible Assets under Development
Non-Current Investments (Unless specified, it will be assumed that Investments are for
more than one year) : Such as
a)Investment in Equity Shares;
b)Investment in Preference Shares;
c)Investment in Govt. or Trust Securities;
d)Investment in Debentures or Bonds;
e)Investment in Mutual Funds.
Deferred Tax Assets
Long-term Loans and Advances : These are the loans and advances which are
expected to be received back after more than 12 months from the date of Balance
Sheet. They are classified as :
a)Capital Advances : Advances given for acquiring fixed assets are called ‘Capital
Advances’. These advances are not received back in cash but are received in the
form of some fixed assets. Since they are ultimately converted into the fixed
assets of the company, they are classified as long term advances.
b)Security Deposits : Security Deposits that are given for a period of more than 12
months from the date of Balance Sheet are classified into ‘Long term Advances’.
Examples are security deposit for electricity and telephone etc.
Other Non-Current Assets : Such as Share Issue Expenses to be amortized after 12
months.

13. C.CURRENT ASSETS shall include the assets held for one year or less. It shall include the
following :
Current Investments : Short-term Investments
Inventories : Stock, Work-in-Progress, Loose Tools, Goods in Transit etc. will be
termed Inventories.
Trade Receivables : Sundry Debtors and Bills Receivable will be termed Trade
Receivables.
Cash and Cash Equivalents : Cash and Bank Balance, Cheque and Drafts in hand.
Short-term Loans and Advances : Such as Advances recoverable in cash
Other Current Assets : Such as Prepaid Exp., dividend receivable, accrued income,
Advance Tax, Share Issue Expenses to be amortized in the next 12 months.
Contingent Liabilities and Commitments shall include the following :
Contingent Liabilities :
a)Claims against the company not acknowledged as debts.
b)Guarantees given by the Company.
c)Proposed Dividend for Current year.
d)Bills Discounted but not matured.
Commitments :
a)Contracts remaining to be executed.
b)Uncalled liability on partly paid shares;
c)Arrears of dividends on cumulative preference

14. Distinction between a Company’s Balance Sheet & Firm’s Balance Sheet
Basis of
Distinction
Company’s Balance Sheet Firm’s Balance Sheet
Format &
Contents
Format and Contents of
Company's Balance Sheet must
be in accordance with Schedule
III Part I of Company's Act
2013.
There is no statutory format or
prescribed contents for the
Balance Sheet of a firm.
Figures of
Previous Years
Figures of the previous year
must also be given against each
figure of current year.
Figures of the previous year are
not required in the Balance
Sheet of a firm.
Order of
Permanence or
Liquidity
Company's Balance Sheet is
prepared in order of
permanence.
Firm's Balance Sheet may be
prepared in order of
permanence or liquidity.
Vertical Form or
Horizontal Form
Company's Balance Sheet
prepared in Vertical form.
Firm's Balance Sheet is
generally prepared in
horizontal form.

15. Part II
FORM OF STATEMENT OF PROFIT AND LOSS
Name of the Company ………………
Profit and Loss statement for the year ended ………………….
(₹ in …………)
Particulars
Note
No.
Figures for the current
reporting period
Figures for the previous
reporting period
I. Revenue from Operations xxx xxx
II. Other Income xxx xxx
III. Total Revenue (I + II) xxx xxx
IV. Expenses :
Cost of materials consumed
Purchases of Stock-in-Trade
Changes in Inventories of finished goods, work-in-
progress and Stock-in-Trade
Employee benefits expenses
Finance costs
Depreciation and amortization expenses
Other expenses

xxx
xxx

xxx

xxx
xxx

xxx
Total expenses xxx xxx
V. Profit before Tax (III – IV) xxx xxx
VI. Tax xxx xxx
VII. Profit after Tax (V – VI) xxx xxx

16. 1)Revenue from Operations: It is the revenue earned from business activities of the company. It will be
shown in notes to accounts as follows :
a)Revenue from sale of products (Gross)
Less : Returns
b)Revenue from sale of services (Net)
c)Other operating revenues such as Sale of Scrap.
Note : In case of a Finance Company the following will become revenue operations :
a)Interest Income
b)Dividend Income
c)Net gain/loss on sale of investments
d)Revenue from other financial services.
2)Other Income : Other income is the revenue that is not earned from business activities. It shall be
classified as :
a)Interest Income (Interest received or earned);
b)Dividend Income;
c)Gain on Sale of Investments
Less: Loss on Sale of Investments
(If it is a net loss, the same will be classified under other Expenses)
d)Other Income such as :
i.Rent Received
ii.Discount Received; Commission Received
iii.Profit on sale of fixed assets
iv.Sale of Miscellaneous items (Newspapers etc.)
v.Refund of Income Tax
Notes to Accounts regarding 'Statement of Profit Loss’
Note : In case of a Finance Company the following will become revenue operations :
Interest Income
Dividend Income
Net gain/loss on sale of investments
Revenue from other financial services.

17. 3)Cost of Materials Consumed : Opening Inventory of Materials + Purchases of
Materials (-) Closing Inventory of Materials
4)Employee Benefit Expenses :
i.Wages, Salaries, bonus and leave encashment.
ii.Contribution to Provident Fund and other funds like gratuity fund,
superannuation fund etc.
iii.Staff welfare expenses such as canteen expenses, medical expenses,
expenses on Employees Stock Option Scheme (ESOS), Employees Stock
Purchase Plan (ESPP).
5)Finance Costs : Finance Costs shall be classified as :
i.Interest Expenses such as :
Interest paid on Term Loan from Bank
Interest paid on Overdraft and Cash credit limit from Bank
Interest paid on Debentures, Bonds and Public Deposits
ii.Other Borrowing Costs : These would include :
Discount or Loss on Issue of Debentures written off or
Premium payable on redemption of debentures written off.
Loan processing Charges
Guarantee Charges
Commitment Charges
Commission paid for deposit mobilisation.

18. 6)Depreciation and Amortization Expenses :
i.Depreciation : Cost of tangible fixed assets written off.
ii.Amortization : Cost of intangible fixed assets written off such as goodwill
written off, patents written off, Computer Software amortized, etc.
7)Other Expenses : All other expenses not classified under other heads will be
shown here :
i.Carriage, carriage inwards and carriage outwards
ii.Freight
iii.Manufacturing Expenses
iv.Rent, rates and taxes
v.Insurance less Prepaid, if any
vi.Discount Allowed
vii.Commission Allowed
viii.Bad Debts written off and Provision for Bad Debts
ix.Repairs to Machinery, Building and other fixed assets
x.Trade Expenses
xi.Administration, office and telephone expenses
xii.Bank Charges
xiii.Loss on Sale of Fixed Assets
xiv.Director’s Fees
xv.Audit Fee
xvi.Conveyance Expenses, Travelling Expenses
xvii.Courier Expenses
xviii.Telephone and Internet Expenses
xix.Entertainment Expenses