Chapter 05 Company final accounts

Company final accounts

Introduction: Every company like other business entities, must prepare final accounts or financial
statements periodically. However, the companies must prepare financial statements in the formats
prescribed by in the companies act.

Financial statements of the company includes the following:

1. Income statement
2. Balance sheet
3. Notes to accounts
4. Cash flow statement
This chapter covers the preparations’ of income statement and balance sheet, along with
explanation for notes to accounts. According to schedule VI of the companies act, the financial
statements must be prepared in vertical formats.

Income statement: An income statement is prepared to ascertain the results of the business( i.e., profits
made or loss incurred)for a given accounting period. The following is the format in which the income
statement must be prepared:

Income statements for the year ending………………………………………

Particulars Note Amount

Net sales revenues   XXX
less: Cost of goods sold 1 XXX
Gross profit   XXX
less: operating expenses and losses(Net) 2 XXX
EBITDA   XXX
Less: depreciation and Amortization   XXX
Note 1 : cost of goods sold
EBIT   XXX
Particulars Amount Amount
Less: interest ob borowings 3 XXX
opening stock of raw materials   XXX
Add: Non operating incomes and gains(interest
Add: purchase of raw materials during the
on investments, profit on sale of Assets, etc)   XXX
year   XXX
Less:Non-operating expenses and lossses(losses
    XXX
on sale of assets)   XXX
Less: closing stock of raw materials   XXX
EBT   XXX
Raw material consumed during the year   XXX
Less: Taxes   XXX
Add: convertion expenses(wages, factory
EAT 4 XXX
overhead, etc.)   XXX
Less:dividends and appropriations   XXX
    XXX
Retained earnings   XXX
Add : opening stock of working progress   XXX
Add:opening balance of profit and loss account   XXX
Closing balance of profit and loss account   XXX
    XXX

Shanthala
Less: M.stock
closing MCOM, UGCNET,
of work (Ph.D)
in progress   XXX ST PAULS COLLEGE
Assistant professor
cost of production   XXX
Add: opening stock of finished goods   XXX
    XXX
Less: closing stock of finisheed goods   XXX
cost of goods sold   XXX
Chapter 05 Company final accounts

Note 2: Cash operating expenses & Losses(Net)

Amoun
particulars t Amount
Administration expenses    
Rent rates, taxes etc. xxx  
salaries xxx  
general expenses xxx  
Audit fees xxx  
Directors fees xxx  
Establishment expenses xxx Xxx
    Xxx
Selling and distribution expenses    
Travelling epenses xxx  
Carriage outwards xxx  
Advertisements xxx  
Discount allowed xxx  
Warehouse charges xxx  
Sales commission xxx  
Bad Debts xxx  
Add: New reserve for doubtful debts xxx Xxx
  xxx  
Shanthala M. MCOM, UGCNET, (Ph.D) ST PAULS COLLEGE
Assistant professor
Chapter 05 Company final accounts

Less: old reseves for doubtful debts xxx  

Other expenses(preliminary expenses written off) xxx Xxx
Less: operating incomes & gains(Commission
received, discount received, etc.)   Xxx
Cash operating expenses & Loss(Net)   Xxx

Note 3: Interest on Borrowings

particulars Amount Amount

Interest on mortgage loans   xxx
Interest on debentures paid xxx  
Add: Outstanding Interest on Debenture xxx xxx
Total   xxx

Note 4: Dividends and appropriations

Particulars Amount Amount

Dividend paid xxx
Interim dividend paid xxx
Proposed dividend xxx
Corporate Dividend Tax xxx
Transfer to General reserve xxx
Transfer to Reserve Fund xxx
Transfer to Sinking Fund xxx
Transfer to other Reserves xxx
Total xxx

1. ‘Revenues’ refers to the revenue generated by the company from sales and services. It is usually
referred as the ‘Top Line’. The Revenues must be taken ‘net of sales returns’ and ‘net of excise
duty’. That is, the ‘Revenues’ to be shown in Income Statement must be calculated in the
following manner:

REVENUES = Sales for the year (less) Sales Returns (less) Excise Duty
2. Cost of goods sold
a. In case of trading entities : COGS = Opening stock + Purchases – Closing Stock
b. In case of Manufacturing Entities: COGS = Raw materials consumed + Conversion Cost.
3. Gross Profits
4. Cash operating Expenses
5. EBITDA
6. Depreciation
7. Amortization
Shanthala M. MCOM, UGCNET, (Ph.D) ST PAULS COLLEGE
Assistant professor
Chapter 05 Company final accounts

8. EBIT
9. Interest on Borrowing
10. Non operating Incomes
11. EBT
12. Taxes
13. EAT
14. Dividends
15. Retained earnings

Problems on income statement

1. From the following particulars prepare an income statement for the year ending 31 st march
2015.
a. P / L a/c Balance from last year Rs. 62500/-
b. Net Profit for the year before tax Rs. 5,40,000/- (Provision for tax @ 40% )
c. Transfer to general reserve Rs. 52,500/- , Dividend equalization fund 40,000/- &
Development Reserve Rs. 37,500/-
d. Dividend - 7.5% on preference shares Rs. 300,000/-
e. Dividend- 12.5% on 50,000 Equity Shares of Rs. 10/-. Rs. 7.50 called up (Calls in arrears
Rs.13000/-).
f. Corporate dividend tax of 20.36%

2. From the following particulars of Rajesh ltd. Prepare Income statement for the year ending 31 st
march 2015
a. Net profit before tax Rs. 16,75,000/-
b. Provision for taxation 33.5%
c. Transfer to reserve fund 20% after tax
d. Share capital : (a.) 30,000 , 15% Preference share of Rs. 100/- each
(b.) 30,000 equity share of 100 each Rs. 75/- paid up

e. Proposed dividend to equity share holders 20%

f. P/L a/c balance B/F Rs. 2,00,000/-

Balance sheet

A Balance sheet is a statement of sources and applications of fund.

Shanthala M. MCOM, UGCNET, (Ph.D) ST PAULS COLLEGE

Assistant professor
Chapter 05 Company final accounts

The following is the format :

Name of the company

Balance sheet as on……………….

EQUITIES AND LIABILITIES NOTE AMOUNT

Share holders fund    
Share capital 5 XXXX
Reserves and surplus 6 XXXX
Non current liabilities    
Secured loans 7 XXXX
Unsecured loans 8 XXXX
Current liabilities 9 XXXX
TOTAL   XXXX
ASSETS    
Non current Assets    
Fixed Assets 10 XXXX
Investments 11 XXXX
Other non- current assets 12 XXXX
Current assets , Loans and Advances 13 XXXX
TOTAL   XXXX

NOTE – 5: Share capital

AMOUN
PARTICULARS T AMOUNT
Authorised Capital   xxx
Issued Capital   xxx
Subscribed capital   xxx
Call up Capital Xxx  
Less: Call in arrears Xxx  
  Xxx  
Add: Share for future Xxx  
Paid Up Capital   xxx
calls in advance   xxx
Total   xxx

Shanthala M. MCOM, UGCNET, (Ph.D) ST PAULS COLLEGE

Assistant professor
Chapter 05 Company final accounts

NOTE – 6: Reserves and surplus

PARTICULARS amount amount

Capital Reserve   Xxx
General Reserve   Xxx
Reserve Fund   Xxx
Sinking fund   Xxx
Securities Premium   Xxx
Other reserves   Xxx
Profit and loss Account (surplus)   Xxx
Total   Xxx

Note-7 : Secured loans

Particulars Amount Amount

Mortage Loans xxx
Debentures xxx
Add: Outstanding Interest on Debentures xxx xxx
TOTAL xxx

Note-8 : Unsecured loans

Particulars Amount Amount

Bank loans   xxx
Loans from subsidiary companies   xxx
Fixed Deposits from Public   xxx
Total   xxx

Note-9: Current liabilities

Particulars Amount Amount

Sundry Creditors   xxx
Bills Payable   xxx
Bank Overdraft   xxx
Unclaimed Dividend   xxx
Outstanding Expenses   xxx
Incomes Received in Advances   xxx

Shanthala M. MCOM, UGCNET, (Ph.D) ST PAULS COLLEGE

Assistant professor
 Chapter 05 Company final accounts

Provisions for taxes   xxx

Proposed dividend   xxx
Corporate Dividend Tax   xxx
TOTAL   xxx
Note-10 : Fixed assets

VEHICL OTHER
PARTICULARS LAND BUILDING PLANT FUNITURE E ASSETS TOTAL
Valueof at the beginning of
the year xxx xxx xxx xxx xxx xxx xxx
Additions during the year xxx xxx xxx xxx xxx xxx xxx
Gross block xxx xxx xxx xxx xxx xxx Xxx
Depreciation chaged for the
year nil xxx xxx xxx xxx xxx Xxx
Disposals during te year xxx xxx xxx xxx xxx xxx Xxx
Total xxx xxx xxx xxx xxx xxx Xxx
Net block(gross block-
depreciation & disposals xxx xxx xxx xxx xxx xxx Xxx

Note-11 : Investments

Particulars Amount Amount

Investments in government securities   xxx
Investments in Approved Securities   xxx
Investment in shares   xxx
Investment in debentures   xxx
others   xxx
Total   xxx

Note-12 : Other Non – Current Assets ( Miscellaneous Expenditure )

Particulars Amount Amount

Preliminary Expenses   xxx
Less: Written off   Xxx
Underwriting Commission   Xxx
Discount on issue of shares and debentures   Xxx
Profit and Loss Account Debit Balance   Xxx
Total   Xxx

Note-13 : Current Assets , Loans and Advances

Shanthala M. MCOM, UGCNET, (Ph.D) ST PAULS COLLEGE

Assistant professor
Chapter 05 Company final accounts

Particulars Amount Amount

Shanthala M. MCOM, UGCNET, (Ph.D) ST PAULS COLLEGE

Assistant professor
Chapter 05 Company final accounts

Cash in Hand   xxx

Cash at bank   Xxx
Sundry Debtors   Xxx
Bills Recievable   Xxx
Inventory   Xxx
Outstanding Incomes   Xxx
Pre-paid Expenses   Xxx
Tax Deducted at source   Xxx
Loose Tools   Xxx
Advances   Xxx
Total   Xxx

Problems on balance sheet

3. State the notes under which the following items are shown in the balance sheet of a company
a. Preliminary expenses
b. Loose tools
c. Discount on issue of shares
d. Forfeiture of shares
e. Bank overdraft
f. Provision for taxation
g. Goodwill
h. Loan on mortgage
4. State the notes under which the following items are shown in the balance sheet of a company
a. 6% debentures
b. Goodwill
c. Underwriting commission
d. Proposed dividend
e. Fixed deposit raised by public
f. Discount on issue of debentures
g. Share premium’
h. sinking fund
5. State the notes under which the following items are shown in the balance sheet of a company
a. Provision for taxation
b. Bills payable
c. Live stock
d. Bills receivables
e. Work in progress
f. Patterns
g. Accrued interest o investments

Shanthala M. MCOM, UGCNET, (Ph.D) ST PAULS COLLEGE

Assistant professor
Chapter 05 Company final accounts

h. Patents & trade marks

i. Unclaimed dividend
Problems on Final Accounts
6. Prepare the final accounts of Hindustan company limited from the following trial balance as on
31st march 2015.

DEBIT BALANCE AMOUNT

Calls in arrears 5000
Premises 750000
Machinery 150000
Furniture 50000
Purchases 680000
Wages 125000
Salaries 60000
Interim dividend(including CDT) 20000
Good will 200000
Debtors 60000
Bills receivables 38000
Bad debts 2000
Debenture interest( up to 30/9/2014 20000
Stock on 01/04/2014 41000
Total 2201000
CREDIT BALANCE AMOUNT
Share capital 500000
Sales 1000000
Reserve fund 180000
Profit & loss account 35000
Creditors 75000
10% debentures 400000
Bills payable 10000
Reserves for doubt full debts(01/04/2014 1000
Total 2201000
Adjustments:
a. The stock on 31/3/2015 was valued at Rs. 80000.
b. Depreciate machinery & furniture by 10%.
c. Maintain reserves for doubtful debts at 5% on debtors.
d. The directors proposed final dividend at 15%.
e. Debenture interest is unpaid for 6 months.
7. Premier Co. ltd. Had an authorized capital of Rs. 6,00,000/- in equity share of Rs.10/- each. Its
trial balance on 31.03.2015 is given below:

Calls in arrears 7,500/-

Premises 3,00,000/-
Plant and Machinery 3,30,000/-
Shanthala M. MCOM, UGCNET, (Ph.D) ST PAULS COLLEGE
Assistant professor
Chapter 05 Company final accounts

Interim dividend ( including corporate dividend tax ) 37,500/-

Stock (1.4.2014) 75,000/-
Fixtures 7,200/-
Debtors 87,000/-
Goodwill 25,000/-
Cash in hand 760/-
Cash in bank 39,900/-
Purchases 1,85,000/-
Preliminary Expenses 5,000/-
Wages 84,865/-
General Expenses 16,835/-
Freight and carriage 13,115/-
Salaries 14,500/-
Directors Fees 5,725/-
Bad debts 2,100/-
Debentures interest paid 9,000/-
Called up capital 4,00,000/-
6% Debentures 3,00,000/-
P/L account ( 1.4.2014) (Cr.) 14,500/-
Bills payable 38,000/-
Creditors 50,000/-
Sales 4,15,000/-
General Reserve 25,000/-
Bad debts provision (1.4.2014) 3,500/-
Adjustments :

a. Depreciate plant and machinery by 10%.

b. Write off preliminary expenses Rs.500/-.
c. Provide for debenture interest due.
d. Of the debtor Rs.500/- are further bad.
e. Provide for Reserve fior doubtful debts at 5% on Debtors.
f. Closing Stock Rs.95000/-
Prepare income statement fo the year ended 31 st March 2015 and Balance sheet as on that date
as per the law.
8. Sunise company limited is a company with an authorized capital of Rs. 500000 divided into 5000
equity shares of Rs. 100 each, 2500 were called and fuly paid, gives you the following ledger
balances as on 31/3/2015.

Particulars Amount
Stock(1.4.2014) 50000
Sales 425000
Purchases 300000
Wages 70000
Discount allowed 4200
Shanthala M. MCOM, UGCNET, (Ph.D) ST PAULS COLLEGE
Assistant professor
Chapter 05 Company final accounts

Discount received 3150

Insurance paid (up to 30.06.2015) 6720
Salaries 18500
Rent 6000
General expenses 8950
Profit & loss account(Cr) 6220
Printing & stationary 2400
Advertisement 3800
Bonus 10500
Debtors 38500
Creditors 35200
Plant & machinery 80500
Furniture 17100
Cash at bank 134700
Reserves 25000
Loan from M.D. 15700
Bad debts 3200
Calls in arrears 5000
You are required to prepare income statement and balance sheet for the year ended
31.3.2015.
The following futher information is also given for adjustments:
a. Closing stock as on 31.3.2015 Rs. 91500
b. Provide 15% depreciation on plant and machinery 10% on furniture.
c. Outstanding liabilities were wages Rs. 5200, salary Rs. 1200 and Rent Rs. 600.
d. Dividend at 5% on paid up capital is to be provided.
9. The following trial balance has been extracted from the books of AMAR limited., as on
31.3.2015. you are required to prepare:1.imcome statement & Balance sheet as at 31.3.2015.

Debit balance Amount Credit balance Amount

Land & building(original cost Rs.
300000) 140000 share capital 200000
Furniture(original cost Rs. 15000) 8000 general reserve 30000
Plant & machinery(original cost
Rs200000 100000 8% debentures 100000
Investments 6000 BOD 3500
Preliminary expenses 4000 Sundry creditos 10000
Advance income tax 8000 Securities premium 6000
Printing & stationary 1200 Gross profit 114000
Stock on 31.3.2014 128000 Sinking fund 40000
Salaries 8000 P&L Account(1.4.2014) 6500
Debtors 70000  
Cash in hand 2000  
Cash at bank 24000  
Shanthala M. MCOM, UGCNET, (Ph.D) ST PAULS COLLEGE
Assistant professor
Chapter 05 Company final accounts

Interest 2000  
Debenture interest 4000  
Directors fess 2000  
Rent, Rates & Insurance 2800  
  510000   510000

Additional information:
1. Provide depreciation on (a) land & building at 5% on straight line method.(b) Furniture &
plant & machinery at 20% on reducing balance method.
2. Provide Rs. 5000 for bad debts.
3. Provide for audit fees Rs. 2500, provision for income tax Rs. 14000 & debentures interest for
6 months.
4. Insurance prepaid Rs. 800.
5. Write off half of preliminary expenses.
6. Directors have recommended (a) transfer of 10000 to sinking fund(b) transfer of 4000 to
general reserve(c) equity dividend of 8% on paid up capital.
10. Following are the balance sheet of NSK Ltd., as at 31/3/2015. You are required to do the final
accounts of the company after additional information in consideration.

Adjustments:
1. Closing stock is valued at Rs. 1050000
2. Depreciate plant at 15%
3. Write off Rs. 5000 from preliminary expenses.
4. Half yearly debenture interest is due.
5. Write off Rs. 20000 further bad debts and unused new RRD at 5% on debtors.
6. Transfer Rs. 25000 to general reserves.

PARTICULARS Amount PARTICULARS Amount

Premises 3072000 share capital 4000000
Plant 3300000 general reserve 250000
stock on 1/4/2014 750000 reserve for DD(1/4/2014) 35000
Debtors 870000 12% debentures 3000000
Goodwill 250000 Sundry creditors 770000
cash & bank 406500 P&L Account 262500
calls in arrears 75000 Sales 4150000
interim dividend 392500  
purchases 1850000  
preliminary 50000  
Wages 979800  
general
Shanthala expensesUGCNET, (Ph.D)
M. MCOM, 68350 ST PAULS  COLLEGE
Assistant professor
Salaries 220250  
bad debts 21100  
debenture interest paid 180000  
  12467500   12467500