Financial Statement of Companies (Schedule III) – CA Foundation Accounts Study Material is designed strictly as per the latest syllabus and exam pattern.
Financial Statement of Companies (Schedule III) – CA Foundation Accounts Study Material
List of requirements for preparation of financial statement of companies as per Companies Act, 2013.
List of requirements for preparation of financial statement of companies as per Companies Act, 2013:
1. Books of Account etc. Section 128: Every Co. shall keep at its registered office, books of account and other relevant books and papers and financial statement for every financial year which gives true and fair view of the state of affairs of the Co., including branches.
It shall be kept on accrual basis and by double entry system. It can be maintained on electronic mode also. Such books of account & vouchers shall be maintained in good order for minimum 8 (eight) previous financial year.
2. As per section 2(40) Financial Statement includes –
- Balance sheet
- Profit & loss A/c
- Cash Flow Statement
- Statement of Changes in Equity
- Explanatory Notes.
Note: One Person Co., Small Co., & Dormant Co. may not prepare Cash Flow Statement.
3. As per section 2(41) Financial Year should be ending on 31st March every year.
4. Balance Sheet should be in the Vertical Form given in Part I of Schedule III to the Companies Act, 2013 [u/s 129(1)]
5. Profit & Loss Account should be in the Vertical Form given in Part II of Schedule III [u/s 129(1)]
6. As per proviso to section 129 the companies for which separate forms are prescribed by the statute governing their activity need not follow Schedule III like Banking, Insurance & Electricity Companies. Acts & Regulations governing Electricity Co. do not provide any format for Financial Statement hence the same will be prepared as per Schedule III.
7. As per section 129(3) every Holding company (a company which has one or more subsidiaries) should in addition to its separate Financial statement, should also prepare & present Consolidated Financial Statement and also attach with its Financial Statements, a statement containing salient features of Financial statement of its subsidiary company or companies. Explanation to this sub-section says the word subsidiary shall include associate co. and joint venture. This means even if a company has only associate or joint venture, it will have to prepare Consolidated financial statement.
8. Schedule III do not prescribe any format for Cash Flow Statement hence it should be prepared as per AS-3 by direct method or by indirect method.
9. U/s 134 the financial statements shall be approved by Board of directors and signed on its behalf as prescribed. The directors report shall contain among other things (a) Directors responsibility statement, (b) explanation or comment on ever qualification, reservation or adverse remark or disclaimer by Auditor or Company Secretary, (c) propose transfer to reserves, (d) recommendation of dividend (e) material changes and commitments, if any, affecting the financial position which have occurred between the end of the year to the date of the report (i.e. non-adjusting event as per AS-4). Financial statement shall be issued, circulated or published with a copy of (a) any notes annexed to and forming part of such financial statement (b) the auditor’s report and (c) the board’s report.
10. Section 130: A company shall re-open its books of account & recast its financial statements when ordered by court or tribunal, on application by Central Govt., Income Tax Authority, SEBI, any other statutory regulatory body or authority or any person concerned. Order states that relevant accounts were prepared in a fraudulent manner or affairs of the Co. were mismanaged casting doubt on the reliability of financial statement.
Court or Tribunal shall give notice to and consider representations received from above referred statutory authorities/Govt. Such revised or re-casted accounts shall be final. Any financial years accounts can be reopened, no time limit.
11. Section 131: The Directors can revise financial statements or boards report with the approval of tribunal for any of the 3 preceding financial year, if they do not comply with the provisions of section 129 or section 134. Tribunal shall give notice to and consider representation received from Central Govt, and the Income-tax authorities.
It shall not be done more than once in a financial year and a detailed reason for such revision shall be disclosed in the boards report of the financial year in which such revision is being made. Revision must be confined to corrections for non-compliance with the provisions of section 129 or 134 and any consequential alteration. Rules may be prescribed in this regard.
In the financial year 2014-15 company can revise only once, financial report or boards report of one or more of the year 2011-12, 2012-13 or 2013-14.
12. Section 132: Central Govt, may constitute a National Financial Reporting Authority (NFRA) consisting of Chairperson & members not exceeding 15. It shall (a) make recommendations to Central Govt, on formulation of accounting and auditing policies and standards to be followed by companies and their auditors, as the case may be (b) monitor & enforce # compliance with such standards (c) oversee the quality of services of the professions associated with the compliance of such standards (d) have power to investigate professional or other misconduct of Chartered Accountants.
On matters being investigated by NFRA no other institute or body shall initiate or continue proceedings (e) where professional or other misconduct is proved, have power to (A) impose penalties not less than ₹ 1 lac but may extend to 5 times of the fees received in case of individual & not less than ₹ 10 lac but may extend to 10 times of the fees received in case of firm (B) debarring the member or firm from practice as CA for minimum 6 months to maximum 10 years. Appeal against this order can be made to an Appellate authority appointed by Central Govt, u/s 132(6).
13. Private Co. [U/s 2(68)] is a company –
- having minimum paid up capital of ₹ 1,00,000 (or higher amount if prescribed) and by its articles
restricts the right to transfer its shares and
- limits the number of member to 200 (employees or past employees who continued to be member shall not be counted).
- prohibits any invitation to the public to subscribe for any securities of the Co.
14. Small Co. [U/s 2(85)] is a co. other than a public co. –
- Paid up share capital of which does not exceed ₹ 50,00,000 (or higher amount if prescribed not exceeding ₹ 5 crore)
- Turnover as per last Profit & loss account does not exceed ₹ 2 crore (or higher amount if prescribed not exceeding ₹ 20 crore) Provided it is not a Holding Co. or a Subsidiary Co.
15. One Person Company [U/s 2(62)] means a Company which has only one person as a member.
16. Public Co. [U/s 2(71)] means a company which is (i) not a private company and (ii) has minimum paid up share capital of ₹ 5,00,000 (or higher amount if prescribed). A Private co. which is subsidiary of a public co. shall be deemed to be public co.
17. Subsidiary Co. [U/s 2(87)] means a co. in which the holding co. (i) controls the composition of board of directors (i.e. can appoint or remove all or a majority of the directors) or (ii) exercises or controls more than one half of total share capital either at its own or together with one or more of its subsidiary co.
18. Associate Co. [U/s 2(6)] is a Co. in which other Co. has significant influence, but is not a subsidiary of that Co. and includes a joint venture. Significant influence means control of 20% or more of total share capital or of business decision under an agreement.
19. Holding Co. [U/s 2(46)] means a Company which has one or more subsidiary co.
20. Dormant Co. [U/s 455] Where (i) a Co. is formed and registered for a future project or to hold an asset or intellectual property and has no significant accounting transactions such a Co. or (ii) an inactive Co. can apply to registrar to grant status of Dormant Co. Inactive Co. is a Co. which (i) has not been carrying on any business or operation or (ii) has not made any significant accounting transactions during the last two financial years or (iii) has not filed financial statement and annual returns during the last two financial years.
Operating Cycle is defined in Schedule III of the Companies Act, 2013 as follows:
“Operating cycle is the time between the acquisition of assets for processing and their realization in cash or cash equivalents. Where the operating cycle cannot be identified, it is assumed to have duration of 12 months.”
(a) Contingent Liabilities are those liabilities which may or may not arise because they are dependent on a happening in future. For example, Proposed Dividend is shown as Contingent Liability because it is subject to approval of shareholders. Contingent liability is not recorded in the books of account but is disclosed in the Notes to Accounts for the information of the users.
It is to be classified into:
- Claims against the company not acknowledged as debts
- Bills Receivable discounted from Bank not yet due for payment
- Proposed Dividend
- Other money for which the company is contingently liable.
(a) Commitments mean financial commitments due to activities agreed to by the company to be undertaken by it in future.
They are to be classified into:
- Estimated amounts of contracts remaining to be executed on Capital Account and not provided for
- Uncalled liability on shares and other investments partly paid
- Other commitments (Nature to be specified).
Quoted Investment is an investment in respect of which a quotation or permission to deal on a recognized stock exchange has been granted.
Trade Investment is an investment by a company in the shares or debentures of another company, not being its subsidiary, for the purpose of promoting the trade or business of the Erst company.
True or False
Maximum number of members in case of private company is 50.
False: Maximum number of members in case of private company is 200.
While drafting the balance sheet of a company bills receivables are shown under the head Other Current Assets.
False: While drafting the balance sheet of a company bills receivables are shown under the sub-head Trade receivables.
When duration of operating cycle cannot be identified, it is assumed of 12 months.
True: Normally operating cycle is less than or more than 12 months in any business but when it is difficult to identify the duration of operating cycle of any business it is assumed as of 12 months.
Securities premium received by a company is added to share capital while preparing the balance sheet of a company.
False: Securities premium is not added to share capital but is shown under the sub-head Reserves and Surplus.
It is mandatory for a company to deduct provision for bad and doubtful debts from trade receivables.
False: It is not mandatory for any company to deduct provision for bad and doubtful debts from trade receivables. A company may show their provision under the sub-head of short term provisions in the head of current liabilities as per their choice.
A company registered under Companies Act, 2013 in India may prepare its balance sheet in horizontal form only.
False: A company registered under Companies Act, 2013 in India must prepare its balance sheet in vertical format only as stated in Schedule III.