{a. . .

_
EDIJIO'N:;.,. . .
Textbook for CBSE Class XII
'

changes they would

. . .-.~ . ,.•

in. Dr s s. Sareen.
Jr. Poonam Bhasin,
aneJa (Ex-Pnnc1pal).
T.S. GREWAL'S ns
,ep Singh Kathuna,
< Bhashar Mr K.S.
,. its VIJBY Bhal1ani .
Kumar. Mr. Rajeev
nra. Mr An I D. Lal.
ANALYSIS OF to
sed
s
Singh Ms. Sushma
ider. Mr M. Ra ina.
iish Trwari. Mr Vijay
,tra , Ms. Ril u Gupta
FINANCIAL STATEMENTS /

ik. Ms. Anju Malik, As per Schedule Ill of the Companies Act, 2013
~arwal (Gurugram):
Panart. Mr. Prashant
including

-------
is. Ms. Shalini Dev. Project Work & Scanner
s. Ragini Pandey,
1 Sharma, Dr. Abrar
ozabad); Mr. Nikky T.S.GREWAL
Saurabh Varshney,
s Khan, Mr. Rajesh Former Director, Board of Studies, (
/
u Behl, Mr. S.C. Jal, The Institute of Chartered Accountants of India,
Vrjay K. Aggaiwal, Co-Author of Advanced Accounts and Cost Accounts a~ d
(Jaipur); Mr. Manoj . Editor of Management Accounting
Jaga, Mr. Sandeep
ject.
Mr. Sanjay Srimal,
,rayan, CA. Romil
Revised by :
H.S. GREWAL rf /
-at s /
,r); Mr. Ganesh K. bter-
(Sri Ganganagar);
1-ect.
·ora (Chandigarh); Chartered Accountant
U) -;·1~ ¼-a
3hosh, Ms. Sonali
Dr. Pankaj Tandan CA. (Dr.) G.S. GREW L -
ardana, Mr. Khalid
1s. Nisha Sharma, B. Com (Hons.), FCA, Ph.D, CAL (IIAM)
Chartered Accountant and Pracademic fvle>W-VO
~ -
As. Jyotsna Dava r,
jilal Ojha (Su rat): Former Associate, Board of Studies,
m (Bhilai); Mr. Asif The Institute of Chartered Accountants of India
3.in Haidri (Raipur): able
Former Member, Board of Studies,
realer Faridabad);
The Institute of Chartered Accountants of India din
am); Mr. Ganesh s in
)eepali Ambekar, Recipient of award for contribution as academician and writer by
ma Vij, Ms. Vimmi NIRC of the Institute of Chartered Accountants of India
Batra, CA Varun are
; Accounting, UK). In Association u;ith
y to enlist them.
R.K. KHOSLA out
grewa/@gmail. Faculty Member, NIRC of the Institute of Company Secretaries of India and
Ex. Faculty Member, NIRC of the Institute of Chartered Accountants of India

&C_!
sultan chand./
Educational Publishers

y
 CONTENTS
. i 1
J
,, CHAPTER

J/
',,r I q ~I.\ r· \I
\1\,\1,\'-,JS
Part B:

Financial Statements of a Company

1.1 - 1.72
Financial Statements of a Company
2.1- 2.10
Financial Statement Analysis
LEARNING OBJECTIVES
Tools of Financial Stacemenc Analysis-Comparative

t
3.1-3.48 Th• study of this Chapt•r would ,nabl• you ro und,rstand: ....
Scacemenl5 and Common-Size Scacemencs • Financial Statements of a Company 1.1 /
Balance Sheet (
Accouncing Racios
4.1- 4.130 . ' ~tr,, 1. 1
Statement of Profit and Loss 1. 1
' I
Cash Flow Scacemenc 5. 1- 5.120 Notes to Acco unts V ,() t? J PA,u.1. 1
Cash Flow Statement 1.1
• Scanner -----..._ • Characte ri stics and Nature of Financial Statements ..-.? 1.2
• Balance Sheet 1.4
Accouncing Theory S. I-S.23 • Format of Balance Sheet ~/ 1.5
Praccical Problems S.24--S.76 • Expla nation of Heads of Balance Sheet 1.6
• Difference between Provision and Reserve 1.26
• Statement of Profit and Loss 1.45
Model Tesc Papers M.1-M. IO • Format of Statement of Profrt and loss 1.45
• Explanation of Heads of Statement of Profit and loss 1.47
Part C: • Objectives of Financial Statements 1.57
• Essentials of Financial Statements 1.58
Proj ecc Work P.1- 1'.86 • Parties Interested in Fin ancial Statements or Users of Financial Statements 1.58
• limitations of Financial Statements 1.59

Financial Statements are summarised statements of accounting data prepared by an

enterprise at the end of an accounting process, i.e. , after preparing Trial Balance. They
show the organised summaries of detailed information of the financial performance of an
enterprise for an accounting period and financial position at the end of an accounting
period. A set of financial statements as per Section 214QLoi.lha-Cwn~ ct, 2013 includes:
1. B ~ t is a statement of Assets, Liabilities and Equity (i.e., Shareholders'
unds) of the company at a given date. It shows the financial position of a business by
detailing its assets, equity and liabilities. It is also known as Position Statement.
2. Statement of Profit and Loss: It shows the financial performance, i.e., result of business
operations during an accounting period. It is also known as Income Statement.
3. Notes to Accounts: Balance Sheet and Statement of Profit and Loss are supported by
the notes giving details of items in the Balance Sheet and Statement of Profit and Loss.
4. Cash Flow Statement: It is a stalement prepared in accordance with AS-3, Cash Flow
Statement, to show inflow and outflow of Cash and Cash Equivalen~
Section 129 of the Companies Act, 2013 re uires om an to ,.r_gP..ate its financia l
stiiements every e prescn ~d ~ rm, i.e., ~d1ed.ule lll. Lthe.Comp~~ 2013.

A
 An.ilysis of Financia l Statements-CBS E XII 1.3
1.2 Finan cial Slatements of a Compan y

Financial Statements-Definitions (iii) Acco1111ting Co11cepts: Financial Statements are prepared by following the accounting
" Th r Fi111111cial Stal cmmts provide a s1w1111nry of accorrnts of a business e11ter1'rise, the Balance concepts. For example, under the Going Concern Concept, it is assumed that the
Sheet rrflecti11~ /ht' asst'fs, liabilities and capital as 011 a certai11 date a11d income statement showing
l/1 e res ults mui opaaflons during a certain period." - John N. Myer
"Fi11a 11cial St11teme11ts are th e e11d product of financial acco11nti11g prepared by the acco1111ts of a
r\ business shall continue for a foreseeable future, i.e., indefinitely. Fixed assets are
shown in the Balance Sheet at their historicJI value rather than their market value.
The use of accounting concepts also makes the financial statements
b11siw ss enterprise llinl 1mrport to reveal the fi nancial position of the enterprise, the result of its
1

rrcrn ! act,vilies and m, m1alysis of w/iat has been do11 e with earnings." u ~ e and comparable.
- Smith .m d Ashbu rn (' (iv) Personal J11dgme11ts: t1ersonarjudgments also have an important bearing on financial
statements. For example, the choice of selecting a method of depreciation

@MHiM1iM-IMl'-ii'Mi-1Ui!iWiO!-iOiMWiti (fixed instalment or written down value) lies with the management. Similarly,
selection of the inventory valuation method also depends on the personal judgment
:.l of the management.
1. They rela te to past period and thu s, are hi storical documents. (v) Source of Fina11cial I11formatio11: Financial Statements are the source of financial
, The are expressed in monetary terms. information on the basis of which conclusions are drawn about the profitability
- · 11 .eyy shM, naneJa
3. · I-pasmcu;mmu&'-'-"'
~ - , · o h Ral '!!)£.c..5heet-and-financia l perform~ ~----- and the financial position of a company.
~ ta tement of Profit and Joss__

Characteristics of Balance Sheet C':ONT!'NTS OF ANNUAL REPORT

I. U shows the financial position of a company at a specific point of _ti~~-- ,
The annual report of a company, as per law, should disclose the prescribed information to
2. The accounting equation describes assets and liabilities, i.e., Assets= L1ab1lit1es + Owners
enable the users to make informed judgments and decisions. The information is disclosed
Equity, i.e., Shareholders' Funds.
\_, in the Financial Statements, Board Report and by a separate statement being part of the
3. II is prepared by taking balances of assets, liabilities and shareholders' funds as on the
date when it is prepared. annual report.
4. The accounts in the Balance Sheet may have an opening balance, transactions during A set of A111111af Report of a company has:
the year and closing balance.
1. A Report by the Board of ~ s containing:
Characteristics of Statement of Profit and Loss
(1) Report in terms o f ~ of the Companies Act, 2013;
1. It shows the financi al performance of a company, i.e., revenues, expenses and profit or
loss for the period. (i1) Directors' Responsibility Statement;
2. ll is prepared fo r a past period and thus, is a hi storical document. (iii) Report on Corporate Governance; and
3. It is for a specific accounting period .
(iv) Management Discussion and Analysis.
~ tu!J1 of Financial Statements

The inform ati on in the Financial Statements is the result of a combination of:
2. Auditors' Reoi:g to the Shareholders.
W Recorded Facts: The term 'recorded facts' means record ed transactions in the books 3. Financial Statements:
of account on the basis of evidences, For exa mple, amounts of cash in hand, cash (i) Balance Sheet as at the end of the financial year;
at bank, debtors, sales, purchases, etc., are recorded facts.
(i1) Statement of Profit and Loss for the year ended; and
(ii ) Conventions: Transacti ons are recorded in the books of account following
accounting con ven ti ons. For example, because of 'Convention of Conservatism', (iii) Cash Flow Statement.
provjsion is made for ex pected losses but expected gains and profits are ignored.
It means that real financial performance and financial position of the bu siness 4. Notes to Accounts:
may be better tha n what is shown by the financi.il s tat ement s. The use of (i) Accounting Policies follow ed by the company;
acco unting con ventions makes financial s tatements reliable, unders tandabl e
and comparable. (i1) Notes to Accounts giving details of line items in Balance Sheet and Statement of
Profit and Los s;
 Anal ysis of Financia l Statements-COSE XII \,,,)A' dvf».JJ. ) ·;~;.;-,.1tv0}' Q/,0-'l" ,CAA- C
l..;J_ 1.7
1.4 Financial State ments of a Company \ ~'l.():}--V/12..,'/\)_:,
Explanatory notes explaining significant transactions and events; and
'\.:>
(iii) Format of the Balance Sheet \
(iv)
Additional information required to be disclosed in terms of Part III of Schedule lJI
The format of Balance Sheet as prescribed in Part I of Schedule III of the Companies Act, 2013,
of the Companies Act, 2013.
is as follows:
1. Report by the Board of Directors Name of the Company ...
(l' in ...)
The Companies Act, 2013 requires companies to hold a meeting of its shareholders every BALANCE SHEET as at..
Particulars Figures as at the Figures as at the
yea r called as Annual General Meeting. It is convened to adopt, consider and approve Note
No. end of the Current end of the Previous
the Board Report, Balance Sheet, Statement of Profit and Loss and the Cash Flow Statement.
Reporting Period
The contents of the Board Report are specified in the Companies Act, 2013. However, they (4)
(1)
may give additional information that they consider appropriate.
t. EQUITYANDUABIL~
2. Auditors' Repo rt to the Shareholders C!:,..shareholders• Fu ds j · '
(a) Share Capital
An Auditor of a company, on the basis of examination of books of account and information
(b) Reserves and Surplus
obtained, forms his opinion whether the company has followed the applicable laws and ·(# Money Received against Share Warrants
accounting standards and also whether the financial statements, i.e., Balance Sheet, Statement .fl.. sl,are Application Money Pending Allotment
of Profit and Loss and Cash Flow Statement are true and fair. He expresses his opinion in I 3. Non-Current Uabllltles
his report issued to the shareholders of the company under Section 143 of the Companies (a) long-term Borrowings ~?
Acl,2013. " ':T(b) Deferred Tax Liabilities (Net)
.J(c) Other long-term Liabilities
(d) long-term Provisions -f
IMPORTANT NOTE
. 4. Current L11bilitles
(....f( l!::,o.NJ<__

,,
(a) Short-term Borrowings
Schedule //I of the Companies Act, 2013 requires that details of entries, i.e., line items
' (b) Trade Payables
in the Balance Sheet and Statement of Profit and Loss be given in the Notes to
Accounts which should be cross referenced with the line item in the financial 1l...
L ~c) Other Current Liabilities
-~d) Short-term Provisions -')
""
i ~'i'. Gif\ O,VV
•a,{, ~~
statement. For example, Share Capital shall be shown as one amount in the Balance Total }ff ,.

l
Sheet and details of Equity Share Capital and Preference Share Capital (like Authorised II. ASSETS
Capital, Issued Capital and Subscribed Capital) shall be given in the Notes to Accounts. 1. Non-Current Assets
It should also be noted that Schedule Ill of the Companies Act, 2013 has prescribed (a) Fixed Assets:
(i) Tangible Assets
.,JI- 0
thrlurm:r-uf Balarfce Sfieet and Statement of Profit and Loss a;dh as not prescrib"'id
(ii) Intangible Assets
thtl-ecfrrtenfsofihe Notes to Acc;;;;,s, Thus, Notes to Accounts can have information
which in
the opinion of the company is material and should be disclosed.
(iii) Capital Work-In-Progress
(Iv) Intangible Asse'ts under Development
(b) Non-<urrent Investments
(c) Deferred Tax Assets (Net) , A I"
(d) Long-term Loansand Advances \ IJ" '\
(el Other Non-current Assets
2. Current Assets
B•la.nce Sheet is a financial statement that summarises company's Equity (Shareholders' (JI.; I '
{a) Current Investments
Funds), Liabilities and Assets at a specific point of time. These three parts of the
~,~JJ)
(b) Inventories

1)
Balance Sheet, i.e., Equity (Shareholde rs' Funds), Liabilities and Assets show what the (c) Trade Receivables 1 1 /./.
-Or,i\ v"
company owns and what it owes. (d) Cash and Cash Equivalents I I' ~'' L cl.),,,
(e) Short-term loansand Advances
Balance Sheet of a company is prepared in the prescribed format, i. e., Schedule llJ, (I) Other Current A<sets
Part J, of tJ1e Companies Act, 2013.
Total
 l.la la nce S heet prescrib d · p I •- ·• • ><dtemen ts of a Company 1.7
into two , . e _,n art of Schedule III of the Companies Act, 2013, is divided
parts , i.e., I. Equity and Liabilities and II. Assets.
class of Share Capital (Equity or Preference) giving the number PL.hares-i"6ued"l!nd
their nominal (face) ya(11e is-shown in the Note to Accounts on Share Capital. It
I. EQUITY AN D LIABI LITIES should be kept in mind that Issued Capital can be equal to or less than the Authorised
Capital. Also, it can be equal to or more than the subscribed capital.
_E qu i ty is U,e liability towards sha reholde rs and is termed as 'Shareholders' Funds' It
The amount of Issued Capital is shown in the Note to Accounts on Share Capital for
includes Share Capital, Reserves and Surplus and Money Received against Share Warra~ts. information only. It is not added to the liability.
Li abi l ities means external liabilities of the company, i.e., liabilities towards outsiders. It
IS s hown as Non-current Liabilities and Current Liabilities. Definition of Issued Capital {Section 2(50) of the Companies Ac1, 20131
"Issued
for Capital" means such capital as the company issues from time Io time
subscription.
In behve en Shareholders ' Funds and Non-current Liabilities, 'Share Application Money
Pending Allotment' is s hown.

1. Sharehol ders ' Fu nds

it, ,.,
Beatall Sports ltd . has Authorised Share Capital as follows: 10,000 Equity
S h are ho ld ers' F u.nds comp rises three items, i.e., (a) Share Capital; (b) Reserves and Surplus;
Shares of t 10 each and 10,000 Preference Shares of t 1 0 each. Can the
and (c) Money Received agains t Share Warrants. Let us discuss them in detail. company issue 15,000 Equity Shares and 5,000 Preference Shares?
(a) Share Capital: Share Capita[ means shares issued by the company for subscription and
(iii) Subscribed Capital: Subscribed Capital is that part of the Issued Capital which has
amount received agains t the iss ued s hare capital and also shares issued for consideration
been subscribed. Amount received by the company, whether in cash or kind, as
oili e r ilian cas h. The person s to whom shares a re allotted a re known as shareholders . Subscribed Capital is shown as Share Capital on the face of the Balance Sheet.
Sh a re C ap i tal includes both Equity Share Capita l and Preference Share Capital.
Definition of Subscri bed Capital [Section 2(86) of the Companies Act, 2013]
Sch__!' d ul e Ill o f the Companies Act, 2013 requires ti1e Balance Sheet to disclose, i.e., show "Subscribed Capital" means such part of the capital which is for the time being provide
a u th oris ed ca pital, issu e d capital, s ubscribed capital, amount called-up by the company outline of box subscribed by the members of a company.
f"" '½'d-pa id - up by the shareholde rs. It should be kept in mind that the details required by
,f \ ~.ioe sched ule are given in ilie Notes to Accounts. The details required to be given are
. / i iucussed below :
Subscribed Capital is classified, i.e., shown under the following hvo heads:
(a) Subscribed and fully paid-up; and
(b) Subscribed but not fully paid-up.
' \ (1) Authoris ed Capital or Nominal Capital: Authoris ed Capital or Nominal Capital is the
Let us discuss it in detail.
.:::.~ m axi mum ca pital that a company can iss ue for subs cription. It is stated in the
Me r a nd um o f A s sociation of the company und e r Capital Clause and is divided Subscribe d and Fully Paid-up
into differen t cla sses o 1are apita J su e as qu1 fy"°"Sliare-C:crpit al and Preference
Shares arc shown as 'Subscribed and fully paid-up' when both the following conditions
Sha r e Cap ital . It is t.h e maximum a.mount up to which a company can issue shares are met:
und e r each cl ass o f S hare Capital.
(;) the company has called the entire nominal (face) value of the share; and
The a m o unt of Authorised Capita.I is s hown in the Note to Accounts on Share Capital (ii) the company has received the amount called-up.
fo r info rmati o n o n ly . 11 is not a dded to the liability.
For example, Mis t Ltd. has issued 1,00,000 Equity Shares of 10 each and has called the full
Defi-;;;-tion of Authorised Capital (Sect ion 2(8) of the Companies Act, 2013] nominal (face) value oft 10 to be paid and has also received it. Since the company has called
the full nominal (face) value and has also received it, it will be shown as full y paid-up.
• Authorised Capital" or "Noml11al Capital" means such capital as is authorised
by 'the memora ndum of a company to be the maximum amount of share capital Share capital is shown i.n the Note to Accounts on Share Capital under Subscribed Capital
of the compan y. .is follow s:
Subscribed Cap ital
(11) Issued Capital: Iss u e d Ca pita l is tha t part o f authorised capital which the company Subscribed and fully paid-up:

J
h as iss u e d fo r s ubsc rip tion u p lo lhe date o f Balance ShceL Shares issued under each 1,00,000 Equity Shares of'{ 10 each 't 10,00,000
 Analys is of Financia l Statements- CBSE XII 1.9
1.8 Financial Statements of a Company
Su bsc ribed but Not Full y Paid-up
Subs c ribed Ca pital
Sh.ires are shown as 'Su bscribed but not fully paid-up' under the following two si tuations:
Subscribed bur nor fully paid-up:
12,00.000
(i) When the Company ha; Called the F111/ Nominal (Face) Val11e of the Share but has not 1,50,000 Equity Shares oft 1o each, t 8 called
10,000
rcct'ivrd t/Je Amount Cnlled-11p. Less: Calls•ln-Arrears (5,000 x t 2)
11,90,000
Total
Where the company has called the full nominal (face) value of the share but ha s not
received the called amount, the shares on which amount call ed is not received are ~ "::~,;;;:.:.:i::~~2,IIJ,l\.~~Uap.lml,Jhe.:;haJ:cs are-shown as-'S 11bscribrd but 110/..fully

- -
classified or shown as 'S 11bscribed b11t not fully paid-up'. For example, Fifth Avenue Ltd. :;{., 11b~ be~ b11trrotifully"patFtijioecause the lull no minal
issued 1,00,000 Equity Shares oft 10 each. It called-up the full nominal (face) value
of the share, i.e., t 10 and received the amount called except th e final call of t 3 on ...
-"(face ca e _
Issue of Differe nt Classes of Share Cap ital
y the
---company. _,ti,
/(\
10,000 Equi ty Sha res. Share capital of 90,000 Equity Shares will be classified or shown
Where the company has issued different classes of share capital, detail of each class of share
as 'S11 bscribed and Fully Paid-u p' whereas 10,000 Equity Shares will be classified or
capital is shown. For example, if a company has issued both Equity and Preference Shares,
shown as 'Subscribed but Not Fully Paid-11p'.
Authorised or Nominal Capital, Issued Capital and Subscri bed Capital is shown for Equity
Share capit al is shown in the Note to Accounts on Share Capital under Subscribed and Preference Shares separately. It is illustrated below by taking imaginary data:
Capital as follows: Noles to Accounts
I Year Ended
Particulars
S u bscribed Capita l 31st March,
2018 ({)
Subscribed and fu lly paid-up:
90,000 Equity Shares oft 10 each 9,00,000
Shue C11plt1I
Subscribed bur not fully paid-up: Authorised Caplt1I
10,000 Equity Shares of t' 10 each 1,00,000 10,00,000

r
1,00,000 Equity Shares off 10 each
30,000 70,000 10,000 Preference Shares oft 100 each 10,00,000
Less: Calls -in-Arrears (10,000 x f 3)
20,00,000
Total (To be shown in the Balance Sheet) 9,70,000
Issued C11pital
90,000 Equity Shares oft 10 each 9,00,000
(h) V\!hr11 lhe Company has not Called Ille Full Nomi11al (Face) Value of the Share. 9,00,000
9,000; 9% Preference Shares• of? 100 each
Where the company has not called the full nominal (face) value of the share, shares 18,00,000
are classi fied or shown as 'S ubscribed but not fully paid-up'. For example, Noida Subscribed Capital
In frastructu re Ltd . has issued 1,50,000 Equity Shares oft 10 each on which t 8 are Subscribed and Fully Paid-up
8,00,000
80,000 Equity Shares of~ 10 each
calJed. These shares will be classifi ed or shown as 'S11bs ~ f ' J n l i f i d-11p'.
Subscribed but Not Fully Paid-up
Share capita l is shown in the Note to Accounts on Share Capital und er Subscribed 10,000 Equity Shares of "t 10 each
Less: Calls-in·Arrears (10,000 x 3)
I~ 1.00.000
30,000 70,000
Capital as follo ws: 8,10,000
9,000; 9% Preference Shares• of f 100 each, t 90 called-up
5,000 8,05,000
less: Calls-in-Arrears (SOO x 10)
S ub s c ri bed Capita l 16,75,000
Total (To be shown against 'Share C11pital')
Subscribed but not fully paid-up:
1,50,000 Equity Shares off 10 each, f 8 called r 12,00,000 ''T he use of '9%' before Preference Sh.ires me<rns di vidend on Preference Shares shall be
A situa ti on may a ri se th at the comp,iny ha s not called the full nom inal (face) value paid @ 9%.
of th e share. Also, it has no t rece ived the amount called-up on th e shares. It means In th e .i.bove discussion, reference h.1s been mad e to tvvo terms, i.e., "Called-up" and "Paid-up".
a pa r t of am ount ca ll ed is in arrea rs. Continuing the above exa mp le, let us assum e
Calle d-up Share Ca pita l
that out of the above 1,50,000 Equi ty Shares, shareholders holding 5,000 Equity Shares
have no t paid th e firs t call of f 2. Calll-d-1111 Capital 111t·m1 s t/1c m 11 01111 f en/It'd l1y tl1t• com11a11y t o be 11aid by the shareholders towards
sharl' cnpilal. For exa mple, a co mp,1ny 's Subscribed Capital is 2,00,000 Eq uity Shares of
Share ca pitJ l, in thi s situation, is classified or shown in the Note to Accounts on IO each .i.g.1inst which the co mp,rny has called ~ 5 per share to be paid by the Shareholders.
Sha re Capita l under Subscribed Capi tal as fo ll ows: In thi s case, { 10,00,000 (i .e., ¥ 0,000 x t 5) is the Coiled -up Capital.

Ill,,_
 1.11.::I'
1.10 Anal ysis of Financial Stalemenls-CBSE XII Financ ial Statements of a Company

Definition of Called-up Capital (Section 2(15) of the Companies Act, 2013] i, 1.2
A company has called t 8 against nominal (face) value of t 10 of the share.

,,,~~
·called-up Capital" means such part of the capital, which has been called for payment.
Will it be classified or shown as 'Subscribed and fully paid-up'? Why?
Pai d-up Sh a re Ca pital or S ha re Capital Paid-u p ./\ :-:'\.
.
Pa id-up Share Capital or Share Ca pital Paid-up menus the amount received by the com pany as ~ .?.° mpany has passed a resolution to call t 2 per share in the event of it
paid-up against Share Capital and credited to Share Capital Account. It also includes amount -r ein~ wound up. Balance amount, i.e. , t 8 per share has been called and also
c~ d as paid-up to Share Capital Account without-payment-being received in cash. For received . How will it be classified in the Balance Sheet of the company?
example, company purchases machinery oft 10,00,000 and issues fully paid shares to the
vendor. The compan y will credit t 10,00,000 to Share Capital as paid-up. Also, ~ i lny Besides the above, following information is given on Sh~!_e Capi!al in th e Note to Accou nts
reissues forfeited shares at a dis=ntJ:;a.jt..L3_per....share),.- the company will credit the on Share Capital:
amou nt of discount (t 3 per share) to Share Capital Account as paid-up. _ _, /
- - ---- - ====== - ____, )~ (i) Shares allotted for consideration other tha.n cash (say for purchase of assets,
services taken and underwriting commission, etc.) and shares allotted as fully paid
Definition of Paid-up Share Capital or Share Capital Paid-up !Section 2(64( of the
bonus shares. This information is d isclosed under Subscribed-Capital.
Companies Act , 2013]
(it) Calls-in-Arrea"'rs from directo rs and officers are disclosed (given) separately.
"Paid-up Share Capital" or "Share Capital Paid-up" means such aggregate of money (iii) Amount in Forfeited Shares Account, i.e., the amount rece ived on forfei ted shares
cre dited as paid-up as is equivalent to the amount received as paid-up in respect of
a.nd not reissued is added to the 'Subscribed Capital' . )?/
shares issued and also includes any amount credited as paid-up in respect of shares of
a company, but does not include any other amount received in respect of such shares, The above is illustrated below by taking imaginary data:
by whatever name called . Note to Accounts

r
Year Ended
I Particulars
31st March,
Calls•in-Arrears
2018 (fl
Calls-in-Arrears means the amount not received by the company against the amount
Share Capital
called-up by it towards share capital. Shares against which the calls are in arrears are
Authorised Capital
shown under "Subscribed but not fully paid-up" at the amount received by the 10.00,000
1,00,000 Equity Shares oft lo_ each
com pany against those shares. For example, DBH International Ltd. issued 1,50,000
Issued Capital
Equity Shares of t 10 each . All calls had been made and received except final call of _ 9,00.000 _
90,000 Equity Shares off 10 each
t 2 per s hare on 10.000 Equity Shares . Subscribed Capital
It is shown :n the Note to Accounts on Share Capital under Subscribed Capital as follows: Subscribed and Fully Paid-up
80,000 Equity Shares of{ 10 each 8,00.000
Subscribed and fully paid-up:
{Out gf the above, 20,000 Eguity Shares..ba11-e.beeo-+s,ued-
1,40,000 Equity Shares off 10 each 14,00,000 for consideration other than cash, pursua~l
5ubswbed bur nor fully paid-up: Subscribed but Not Fully P1id-up ,.._
8,000 Equity Shares oft 10 each 80,000
10,000 Equity Shares of f 10 each 1.00.000
Less: Calls-in-Arrears (8,000 x { 2) f--
16,000
---- -
64,000
Less: Ca lls-In-Arrea rs {10,000 x { 2) 20,000 80,000 " 8,64,000
Tot al 14,80,000 Add:-1"orleited Shares Ne (2,000 x f 6) 12.000
Totzl (To be shown In Balance Sheet against Shire Capital) 8,76,000
Calls-in-Advance
I
A com pan y, if its Art icles of Association permits, may rece ive amount against calls not In case the company has reissyed forfeited shares which has resulted in gain, the gain on
yet made . The amount so received is called 'Calls-in-Advanco'. It is classified or shown reissued shares is transferred to Capital Reserve Account. Capital Reserve Account is shown
in the Balance Sheet as 'Other Current Liabilities' under the main head 'Current Liabilities'. in the No te to Accounts on Reserves and Surplus.

lit.
,,
Ana lys is of Fina ncial Statements--{:BSE XII 1.13
1.12 Financial Statemen ts of a Company

(b) Reserves and Surplus Capital Reserve

According to William Pickels, "Reseroe means amo 11 nt set aside 0111 of profits and other s11rpl11ses, A reserve created out of the capital profit is known as Capita! Reserve. It is created out of
wltic/J are not earmarked in any way to meet any particular liability, k11ow11 to exist on date of the profit earned from transactions of capital nature and is not available for the distribution
tlte Balance Sltect. " Thus, reserves mean amount set aside out of profits and surpluses to meet to the shareholders as dividend . The examples of capital profit from which Capital Reserve
future uncertainties. Rese rve is created to meet prospective losses or liabilities or to is created are:

streng then financia l position of the com pany. • Gain !Profit! on sale of fixed assets;

Surplus, i.e., Balance in Statement of Profit and Loss means profit not appropriated or
d istributed as dividend, i.e., balance of profit remaining after all appropriations towards • Gain (Profit) on reissue of forfeited shares; and

reserves and di vidend. • Gain (Profit) on purchase of an existing busi~ s.

Rese rves and Surplus is shown as single amount on the face of the Balance Sheet against Capital Redemption Reserve
Reserves and Surplus und er Shareholders' Funds. Detail of Reserves and Surplus is shown apital Redemption Reserve is a reserve created when a company purchases its a,lfK,ns
in the Note to Accounts on Reserves and Surplus giving opening balance, additions/ ~mium Reser.\i'..e..._Sec.tio~ 69I-1) Q2 •"-- ,..,.,..,......,.n ,a.c
deductions and closing balance for each item under Reserves and Surplus. Acf,"""20 13, requires that a sum equal to noffiliial Hate/value of shares so purchased shall
be transferred to Capital Redemption Reserve. The reserve may be used by the company to
Schedule lil of the Companies Act, 2013 has prescribed the heads of Reserves and Surplus
issue fully-paid bonus shares.
to be:
/ Section 55 of the Companies Act, 2013, requires that where preference shares are
. (i) Capital Reserve; ~
/ -~t:Jfn
red~ed out of profits which would be otherwise available for declaration of dividend a
(i,) ~ e m ption Reserve;
1/
equal to Nominal (Face) Value of the shares redeemed must be transferred to 'Capital
-(iii) Secu rities Premium Reserve; Redemption Reserve'.
- (i v) Debentures Re demption Reserve; -rr "- (fo,
.,, _
w-J4
oi,Jt_,,;,,,_;,.;J Securities Premium Reserve
),l!l Reva luation Reserve; ' /.
c~ •) 5Fiares Options Outstaruling.,A~; f [
(vi,) Other Reserves (to specify the nature and purpose of each reserve); and
k ~ lei#--<}
Securities Premium Reserve is a reserve to which amount received in excess of the nominal
(face) value of securities (shares, debentures, etc .) is credited. It can be used by a company
for the purposes stated in § ection 52(2) of tb e CompaRies-A~
(viii) Surplus, i.e., Balance in-Statement of Profit and Loss.
Debentures Redemption Reserve (ORR)
A company is required to show the resen 'C'S that are in the nature of reserves at serial (1) to (v1)
Debentures Redemption Reserve is a reserve credited by the amount prescribed under
above under the prescri bed head. For example, if a company has Securities Premium Reserve,
Section 71 141 oftbe Cornpaoies Act 2013 and Rule 181711bl ofthe Com!!gOies !Share Capital
it is shown in the Note to Accounts on Reserves and Surplus as Securities Premium Reserve. and Debentures) Rules, 2014 by a company before redemption of debentures commences.
Schedul e III of the Companies Act, 20 13 permits companies to have reserves other than ~ e c t of pacth r G!!')tf rtible debePl\d.f.!:!• ORR is __g__f3cated onl y tot7_non-convertib.l~...QQJ1io n_
th ose a t serial numbers (1) to (v1) say, Workmen Com ensation Reserve, ! ~ t s of ~
Fluctuation Reserve, Subsidy Reserve, etc. Each such reserve is sho pa rately in the ~ i r ed' fa;
debentures issued by Banking Companies, All India Financial
No te to Accounts on Reserves and Surplus. Institutions (AIFI) regulated by Reserve Bank of India and National Housing Bank.

Surpl us, i.e., Ba lance in Sta temen t of Profit and Loss is shown as a separate item under Revaluation Reserve
Reserves and Surplus. lt is accumu la ted balance of profits of th e past years and also current Revaluat ion Reserve is a reserve which is credited by the upward revision of the book value
yea r remaining J.fter aJ I appropriati ons toward s reserves and dividend . It may have a credit of an asset. It is debited when the value of that asset is revised downward or the asset is
baJan ce or d ebit balan ce. Curren t yea r's profit or loss is added to the bal,mce of eJ rli er years sold or discarded:--Tlie aniuUili standing to the credit of Revaluation ReservB ~unt cannot
bro ugh t fonvard from whk h appropria tions towards 0U1er reserves and divid end are made. b~ used f_or payment of dividend or issuin9....Q.@.us sl:!a[es.
Difference between Statem e nt of Profit and l o ss and Shares Options oJ,standing Account
Surplus, i.e., Balance In Statement o f Pro fit and l oss
Shares Option s oufstanding Account is a reserve to Which difference between the market
Sta temen t o f Profi t an d Loss is a sta tement which shows th e profit earned or loss incurred value and-isfile price of shares issued to employees_is Credited ovenhe-vesting period. For
d uring th e acco untin g yea r. On th e other hand, Surplus, i.e., Balance in Statement of Profit
and Loss is an item of Rese rves and Surpl us.
( example, t~ r ic;a of th e sba(e is~ 75 and is-tQ be issu;;-tO employ ees at~ 50 J he
difference t 25 Ii e I 75 - I 50! ~ • credi ted to this re serve

/
--;;- ------ =½ ') p.v:_/ I (,._A
0
 1. q Analysis of Financial Stalemenls-CBSE XII
Financial Statements of a Company 1.15
Appropriation ot Profit
Example 1. Sony Ltd. has an opening debit balance of { 1,00,000 in Surplu s, i.e., Balance
Tri., fo rmat prescribed in Part LI of Schedule Ill of the Companies Act, 2013 for Statement in Statement of Profit and Loss. During the year ended 31st March, 2018, it earned a profit
0f Profi t a nd Loss does not provide for appropriation of profit. However, profit is oft 3,00,000. Prepare Note to Accounts on Reserves and Surplus showing the amount to
~ppropria tc-d to meet the legal provisions and accounting standards such as transfer to be carried to Balance Sheet.
Di-bentu rcs Redemption Reserve.
Solution:
Profit is appropria ted by adding profit of the current year to the opening balance of Surplus,
Note to Accounts
i.e., Balance in Statement of Profit and Loss and thereafter transferring, i.e., appropriating
amounts to other reserves (sud1 as Debentures Redemption Reserve, General Reserve, Workmen Particulars
C ompensati on Reserve, etc.) The amount transferred (appropriated) is deducted from Reserves and Surplus
Surplus, I.e., 81l1nce in St1tement of Profit and Loss
Surplu s, i.e., Balance in Statement of Profit and Loss and added to the amount of Reserve
Opening Balance
to w hich it is transfe rred. For example, amount transferred to Debentures Redemption Add: Profit for the year as per Statement of Profit and Loss
Reserve is deducted from Surplus, i.e., Balance in Statement of Profit and Loss and is Balance
a dded to balance. if any, under-Debentures Redemption Reserve or a new account is opened. •The balance of? 2,00,000 in Surplus, i.e., Balance in Statement of Profit and Loss
will be shown under Reserves and Surplus in the Balance Sheet.
Note
Example 2. HP Computers Ltd. has an open.ing credit balance of Securities Premium Reserv-3
The revised Accounting Standard - 4 {~ Contingencies and Events Occurr~ng after
and Surplus, i.e., Balance, in Statement of Profit and Loss of ~- 2,00,000 and f 1,00,QOO
the Balance Sheet Date prescribes that dividend proposed by the Board of Drrectors,
respectively. Du~ing the year, _it j ncurred a loss of I--1,50,000.
i.e. , Proposed Dividend is not to be provided in the books Of account but is to be
How will it be shown in Note to Accounts on Reserves and Surplus?
disclosed {shown) in the Notes to Accounts.
Proposed Dividend for the year is declared (approved) by the Shareholders in the Solution:
Annual General Meeting {AGM) that is held after the end of the financial year, i.e., in Note to Accounts
t he next financial year . Particulars

P
As a result of this change, Proposed Dividend of the current year is disclosed (shown) Reserves and Surplus
in the Notes to Accounts a~d Proposed Dividend of the previous year is shown as {o} Securities Premium Reserve (Opening Balance)
appropriat ion from Surplus, i.e. , Balance in Statement of Profit and Loss . (bl Surplus, i.e., Balance In Statement of Profit and Loss {Opening Balance)
Add: Profit (Lo-ss) for the year
For example , Citizen Ltd. proposes dividend for the year ended 31st March, 2018 of Balance
f 10,00,000. It had proposed dividend for the year ended 31st March, 2017 of Total {a+ bl (To be shown In the Balance Sheet against Reserves and Surplus)
f 9,00,000. It will show proposed dividend for the year ended 31st March, 2018,
,: e., t 10,00,000 in the Notes to Accounts and will appropriate, i.e., deduct Proposed Exa mple 3. Casio Machines Ltd. has an opening credit balance of f 5,00,000 in Securities
dividend for the year ended 31st March, 2017, i.e., 9,00,000 from Surplus, i.e.,
Premium Reserve and also debit balance oft 10,00,000 in Surplus, i.e., Balance in Statement of
Balance in Statement of Profit and Loss for the year ended 31st March, 2018.
Profit and Loss under Reserves and Surplus, During the year ended 31st March, 2018, it incurred
Th e J ourn al en t ry passed for appropriation of profit is as follows: a loss oft' 15,00,000. How will it be shown in Note to Accounts on Reserves and Surplus?
Surplus i e Bal,1nce in Statement of Profit and Loss Ne ...Dr. Solutio n:
To Debentures Redemption Reserve A/c
To General Re5erv...e, A/c Note to Accounts
To Workmen Compensation Reserve Ale Particulars
To Dividend P3'ya61'eA/c (Proposed Dividend of previous year)
Reserves And Surplus
(Being the profit appr1fpriated towards ORR, General Reserve, _ _5,Q0,0~
{al Securities Premium Reserve
Workmen Compensation Reserve and Dividend) (b) Surplus, I.e., Balance In Statement of Profit and Loss
Opening Balance (10,00,000)
If th e am o un t of Surp lus, i.e., Ba lance in Statement of Profit and Loss is negative (lo ss), it
Add: Profit (Loss) for the year ~ 0,0OOL
is shown un der Rese rves and Surplu s as negative am ount.
Balance ~ ,0001
Not~ is rep1esented by investme nts, it is termed as 'fund' and not reserve . However, many
- rimes, th e ~ r 7 ~ a n d 4und!...are-used~ 1y:-- Tot•I la+ b) i(20,00,00~
Let us take few exampJ es to un de rstan d be tt e r how appropriati ons are shown in the Note • { (20,00,000) will be shown against Reserves and Surplus under Shareholders' Funds in the
to Acco un ts on Reserves and SurpJu s. Balance Sheet.
,.
1.16 Analysis of Financial Stateme nts-CBS E XII
Financial Statements of a Company 1.17
Example ~-Samsung One Ltd. has opening credit balance off 5,00,000 in Surplus, i.e., Balance
Share Applica ti on Money-When Is It Current Llablllty
in Statement of Profit and Loss. Debentures Redemption Reserve has opening balance of
Share Application Money received by the company and which is to be refund ed to the
t 1,25,000. It earned a profit off 2,00,000 for the year ended 31st March, 2018. It was decided
applicants, i.e., against which shares will not be , e to the a licJnts, is shown ;is
to transfer f 50,000 to Debentures Redemption Reserve and also proposed a final dividend
'Other Current Liab1 I 1es under 'Current LiabiJities' in the E ui Liabilities
of f 1,00,000 on its Equity Shares against last year's proposed dividend of { 90,000.
e alance_ Sh~et.
Show the appropriations by preparing Note to Accounts on Reserves and Surplus. How Share A pphcatlon Money becomes refundable under following circumstances:
will be Proposed Dividend shown in the Note to Accounts?
(1) When the Issue is Oversubscribed: The amount received in excess of issued capital is
Solu Li on: classified or shown under major head 'Current Liabilities' and sub-head 'Other Current
Liabilities' in the Equity and Liabilities part of the Balance Sheet. It is because of the
Note to Accounts
reason that the amount received in excess is refundable to the applicants.
Particulars
(ii) When the issue is oversubscribed and the amount is payable in instalments, th e
1. Reserveund Surplus amount retained by the company to be adjusted against calls is shown as 'Other
(a} Debentures Redemption Reserve Current Liabilities' under Current Liabilities.
Opening Balance 1,25,000
Add: Transfer from Surplus, i.e., Balance in Statement of Profit and Loss so.ooo l 1,75,000 (iii) When the company receives amount against calls yet to be made, 1.e., Calls-in-Advance.
Balance (iv) In case f~~i.y...J~wl-rt'tt~Mir1imu11~ ubscriptio11: In such a situation, it is
-E+B~'fi'ecI or ~ wn umier...major-head-'etirrent- Liabilities' , and - sub"-head 'Other

-11
{bl Surplus, I.e., B1l1ince in St1tement of Profit ind Loss
Opening Balance 5,00,000 ~urrent"tiabi hties' in the Equity and Liabilities part of the Balance Sheet because the
Add: Profit for the year 2,00,000 share application moneyreceiv!l.d.is, refundab·le-to the applicants.
7,00,000
Lrn: Appropriations:
Debentures Redemption Reseive (ORR) 50,000
I, 1 .5
Dividend (Year ended 31st March, 2017) 90,000 1,40,000 5,60,000 A company received applications for 1,25 ,000 Equity Shares against an issue
of 1,00,000 Equity Shares oft 10 each. Allotment is yet to be made against
- Balance

Total (a+ b) (To be shown in the Balance Sheet against Reserves and Surplus) 7,35,000
the applications received as on the date of the Balance Sheet. How will it
be shown in the Balance Sheet?
Proposed Dividend for current year, i.e., year ended 3!st March, 2018 1,00,000 will
be shown in the No1es to Accounts.
Liab ilities
Liabilities are classified or shown as Non-current Liabi lities and Current Liabil ities in the
tlJ 1.4 Balance Sheet. The two terms have been defined in Schedule Ill of the Companies Act, 2013.
A company has to transfer~ 50,000 to Debentures Redemption Reserve. Explain 'Non-current Liabilities' are defined in a negative manner, i.e., "Non-current Liabilities
how it will be shown in the financial statements. are those liabilities wlticl, are not C11rre11t Liabilities."
Since the term 'Non-current Liabilities' is defined in a negative manner, it is important to
(c) Money Received agains t Share Warrants: Share Warrants are the financial instruments underst.ind the me,ming of the term ' Current Liabilities'.
which g ive the h old er ri ght to acqui re Equ ity Shares at a specified date and at a specified
The term 'Current Liabi li ties' is defined in Schedule Ill of the Companies Act, 2013 as follows:
rate. Th ese are fin ancial ins trum ents which will be converted into Equity Shares at a later
d a te a t a p red etermined price. Since these are to be converted into Equity Shares, these are Current Liability is that liability which is:
class ified o r s h own as Sharehold ers' Fund s. (i) expected to be settled in company's normal opernli11g cyck; or
(ii) due to be settled within 12 months after the reporting date, i.e., Ba\,mce Sheet date; or
2. Share Applica tion Money Pending Allotm ent
(iii) held primarily for the purpose of being traded; or
Sh are App lica tfon Mon ey Pending All otment is a line item in between Shareholders' Funds
an d Non-cu rren t Lia biJil ies. A m oun t received by th e company towards share application (iv) there is no unconditional right to defer sett lement fo r at least 12 mon ths aflcr th e
an d aga inst which it will certainly allo t shares is sh own aga ins t Share Application Money reportin g date.
Pending All otment. If a liability meets m1y of the above four conditions, it is class ifi ed or shown as current liability .

.
 1.18 Analysis of f inancial State ments-C BSE XII Financial Statements of a Company
1,19

Let u s di scu ss the conditions fo r a liabi lity to be a cu rrent liability in detail: Operating Cycle is determined for each class of business separately. Thus, if a company
has more than one business (say construction and trJ.ding), operating cycle will be determin ed
li) Expecft.>d to be Settled in Company's Normal Operating Cycle: A liability is classified or
for construction business and trading business separately.
shown J S Current Liability if it is expected to be settled within the company's normal
op erating eye.le. Operating cycle of a company may be a period of 12 months or
more. ln case the operating cycle is more than 12 months (say 18 months), all liabilities #t 1 .6
A company is in the business of trading in timber and also making of furniture .
o f that busi ness are classified or shown as current liability, if they are expected to be
Can it have different Ope rating Cycles for the two businesses?
settled within 18 mon ths from the date of the Balance Sheet. And liabilities of the
b usiness expected to be settled nfter the period of 18 months of the da te of Balance
(ii) Due lo be Sell/ed wif/1111 12 Months from the Date of Balance Slr cct: A liabi lity is class ified
Shee t are classified or shown as Non-current Liabilities.
or shown as current liability, if it is due for settlement within 12 months of the
reporting date, i.e., date of Balance Sheet. It means that if the Operating Cycl e of l11e
Operating Cy cl e
business is less than 12 months, the liabilities due to be settled within 12 months of
The term Operating Cycle is defined in Schedule HI of the Companies Act, 2013 as follows: the reporting date, i.e., date of the Balance Sheet, are classified or shown as current
liability. For exam le, if months an d_ali.a bility
" O~ Cyde is the time between the acqu j:,iti on of an asset for processing and.2}s
is due to ed in 10 months, the liab ili ty will be classified or shown as current
realisation into Cash and Cash Equivalents. If operating cycle cannot be identified, it is
liability b~ use the per lpd..ul iO mon ths, althou gh is-hi'gherth:m-?_mo nths (operJtin g
assumed to be of 12 months."
cycle);-ieis less than 12~
Operating Cycle means the time taken by a rompany to acquire an asset for processing (iii) Held Primari1y]or1Tie1'nrpos,-ofbeing-1'1'aded: A liability held for the purpose o f being
and converting it into Cash and C.ish Equivalents. For example, in a manufacturing company traded is a liabili ty which a company holds with an intention to trade, i.e., purchase
operating cycle for th e product will be the time taken to purchase raw material, processing and sell. For example, a company has issued 1,00,000, 9% Debentures of t 10 ea ch.

r
it to make fin is hed product, selling it and converting it into Cash and Cash Equivalents. It decides that it will trade in 10,000 debentures, i.r., purchase and sell th em. Since
In case Operating Cycle cannot be identifi ed, it is assumed thJt the business has an it is a liability of the company, 10,000, 9% Debentures oft 10 each, i.e., t 1,00,000 will
be shown as current liabili ty and 90,000, 9% Debentures oft 10 each, i.e., t 9,00,000 as
Ope rat.ing Cycle of 12 months.
\ j non•current liability. A~ \' he ld faLihe-pu~f~gisi:tasslttez!oTSl.6wn

=
The effect of Operating Cycle is thJt in case Operating Cycle is of a period of more than 0 1as current liabili t~ ~ R e - H ~t.

12 mon ths (say JS months) all liabtlities of that business are classified or shown as Current
~ (iv) There is 110 1111co11ditio11al Rig/it lo Defe r Settle111 c11 l fo t iii iw st-H-,l.l.ll!!._fhs from the da l_f of
Liabilit y if the.v are due for sen!ement within 18 months from th e date of Balance Sheet. Balance Sheet: If the company has a l.iability due for settlement wiiliin ! 2 months of
Let us un derstand h ow period of Operating Cycle is determined . the date of Balance Sheet and it does not have the right to defer, i.e., pDstpone the
settlement, it is cl.issified or shown as current liability. For example, a company has

~-
OPERATING CYCLE CHART taken a loan from bank which is due for payment on 1st October, 2018. ln the Balance
Sheet as at 31st March, 2018, loan will be classified or shown as current liability
Cash/Bank
because the cornp<m y cannot postpone the liability to a !ater date, i.e., extend the
Trade ReceJv;i bJes period of loan. The right to extend it is with the bank. A
Purchase of Raw
Realfsed
Mater ial (Say held for
Ill ust rat ion 1. Classify the liabilities given below as Non·currert't Liabilities and Current
3 Months)

( )
Liabilit.ies giving reasons for such classification:
Particulars
I Operating Cycle Expected Period
of Payment
finis hed Good Sold and Converted 7' (In Months) Un Months)

w
ro Tradt Rectlvablts (Say on
Processing of R.iw Material to - + - - - -~ - - - - -
Credit Pe ri od of 4 Months) (I) Trade Pa~ables
10
manufacture Finished Goods
..., fi nished Goods Held Jn (Say 4 Months} 10 12
(ii) Trade Payables
'---- lnveniory (Say 10 15
(iii) Trade Payables
2 Months) 18 15
(iv) Trade Payables
Operating Cycle is l3 Months (i. e., 3 Months + 4 Months + 2 Months + 4 Months) 18 24
(vl Trade Payables

\
, 1.20 Analysis of Fi nancial Statements-CBSE XII Financial Statements of a Company 1.21

Solu tio n: STATEMENT SHOWING CLASSIFICATION OF LIABILITIES (TRADE PAYABLE~ Disclos ure o f D e bentures Issued as Collatera l Secu ri ty
Case As Current Llabllitlrs Reason Debentures issued as Collateral Security can be disclosed in any of the following manner:
Or
Non•cu"ent UabllJtles (i) When Entry is not Passed for Debe11tures Issued as Collateral Sec urity:
(i) Current liabilities Expected Payment Period In the Note to Accounts on Borrowings (Long-term or Short-term), in the particulars
- is less than the Operating Cycle, and column below lhe borrowings, it is disclosed tha t the loan is collaterally secured by
- is within 12 months from the date of Balance Sheet.
issue of debentures as follows:
Current Liabilities Expected Payment period is 12 months which is equal to a period of 12 months
~
~ 'i) (Second condition) from the date of Balance Sheet although it is more than the Jroan from Bank (say) vvD \' 10,00,000
period or the Operating Cycle. ~ (~ecured by issue of 12,~ 9% Debentu res.
(iii) Non-current Liabilities Expected Payment period is more than the period of Operating Cycle and after . of ~ chasColla~ ~~ .
12 months from the date of Balance Sheet. _ (ii) JYl(en an Entry is Passed for Deben tu res Issued ns Collateral Secim ty:
(iv) Current liabilities Expected Payment period is less than the period of Operating Cycle although it is
The entry passed for issue of debentures as Colla:era l Secunty 1s:
payable after 12 months from the date of Balance Sheet. t
(v) Non-current Liabilities Expected Payment period is more than the period of Operating Cycle and after
Debentures Suspense Ne ... Dr. \2Jl(2.Jl.QQ._
t 2 months from the date of Balance Sheet
To 9% Debentures Ne
3. Non-C u rre nt Liab ilities {12,000; 9% Debentures'° 100 each issued as
Collateral Security against loan oft 10,00,000)
Non-current Liabilities are defined in Schedule III of lhe Companies Act, 2013 in a neg!!tive
manner, i.e., non-current liabilities are those liabili ties which are not current liabilities. Debentures issued as Collateral Serurity are shown in the Note to Accounts on
Long-term/Short-term Borrowings as follows:

---
Schedule Ill of the Companies Act, 2013 requires Non-current Liabilities to be classified into: t
(n ) Long-lerm Borrowings;
loan from Bank (say) 10,00,000
(b) Deferred Tax Liabilities (Net)'; 12,00,000
12,000; 9% Debentures of 't' l 00 each
(c) O ther Long-lerm LiabiLities•; and Tess: Debentures Sasµ e: 1:Se a le 12,00,000
(d) Long-term Provisions. 10,00,000

IMPORTANT NOTE
I, 1.7
• Accounti ng treatment of Deferred Tax Liabilities (Net) and Other Long-term Liabilities Axis Consultants Ltd. issued 10,000; 9% Debentures of i:: 100 each on
will not be evaluated. However, their presentation in the Balance Sheet can be evaluated. 1st October, 2013 to be redeemed on 30th September, 2020. How will it be
classified or shown in the Balance Sheet as at 31st March, 2018? Give reason .
Le l us now dfacuss each line item under n on-current lia bilities in detail:
(a) l ong -term Bo"owi11gs: Borrowings mean amou nt taken as loan by the company. It C urre nt Mat u rities of Lo n g-te rm Debts
m ay be by issue of d ebentures, loan from banks or private lenders, public deposits o r of A part of long-term borrowing may become due fo r repayment within 12 months of the
an y o ther na tu re.
date of Balance Sheet or with in lhe period of Operating Cycle . In s u ch a case, part of th e
Bo rrowin gs are classified or shown as ' Long-term Borrowings' when the loan is repayable borrowing tha t becomes due fo r repayment is sh own under.m ajo r b ead 'Current T iabiJi ties'
by th e co mpany afte r 12 months from th e date of Balance Sheet or afte r th e period of and sub-head •~ C•; ~z a bi titi-s=m1eh t Maturities of L-ung te•ro ..I2f.b ts ' .
opera ting cycle. Whethe r a borro wing is Long-term Borrowing or Short-term Borrowing, For example, term oan a en by the co mpany from a ~ k. Ins talments fa lfing du e for
it is d ete rmined on the d ate of borrowing. Long-term Borrowings are show n und er the payments within 12 months of th e Bala!!,'.e Sheet date (assuming Operating C y cle period
fo Uowin g head s in lhe Note to Accounts on Long-term Borrowings: to be less lhan 12 months) will be sh own as ' C1.1,rrent Ma turities-of- b<>ng- term>Debts' ._.,M
(1) Deben tures;
(i,) Bo nds; (b) Deferre,t Tax Liabilities (Net): Every yenr Accow,tiug Jucome is compared with Taxn -;;;r
Jucom e a11d 1/ the dilfere11ct' between the two exists wh icl, is temporary in 11at 11re, income tax 011
(ii,) Term Loans: (a) from Ban ks; an d (b) Other Parties;
(iv) Pu blic Deposi ts; a n d t/J e d1ffere 11cc amount is termed as deferred tax.
/11 case Acco1111t111g l11co111 c 1s more tlln11 the Ta xable l11 come, it resu lt s i11 Dtferred Tax Liability.
(v ) O th e r Lo ans a nd Adva n ces (na tu re to be specified) .
/11 case Accomlli11g l11 co111e is less tlrn11 tht' Taxable lu come, it rcs11lts ill Deferred Tax A sset. The

....
 1.22 Analysis of Financial Statements-CBSE XII
Financial Statements of a Company 1.23
amo unt of Deferred Tnx Unbility or Asset is ndjusted to the existing bnln11ce in Deferred Tnx to meet the liability is determined. Provision, like liability, can be Jong-term (non-current)
Liabil ities (Net) or Deferred Ta x Assets (Net) ns tl,e case 111ay be. · provision and short-term (current) provision. Long-term provisions are the provisions
For example, depreciation is charged in the books of account on Straight Line Method but against which liability will arise after 12 months of the date of Balance Sheet or after the
Inco me Tax Act, 1961 allows it on Diminishing Balance Method (Written Down Value period of Operating Cycle. For exampl~, promie<HRade for retirement benefits a able_
Method) . Thus, the difference will arise between the two incomes. But it is temporary in to employee,c;who will retire after 12 mo t rom e a e of7l alance Sheet. Another
na ture, because at the end of the life of an asset, depreciation under Straight Line Method rel<ample-is-ProVISion tor Warranty C!aimsth-a t"feTatesfo the period after 12 months of the
and Diminishing Balance Method will become almost equal. d~
It would have been observed from the format of Balance Sheet that Deferred Tnx Linbilities (Net) ach item of Ion · erm rovision is disclosed se arately in the Note to Accounts on Long-
ter 1sions, which are totaUed and a single amount is shown against Long-term
appear under Non-current Liabilities in the Equity and Liabilities part of the Balance Sheet
Provisions on the face of the Balance Sheet. Examples of Long-term Provisions are Pro vision
and Deferred Tnx Assets (Net) appear under Non-current Assets in the Assets part of the
Balance Sheet. The two terms are interrelated as balance in Deferred Tax Liabilities (Net) in fo~ ty, f ovision for Eam_i d Le,ij} and Provision for Warranty. J.01V\J•b(k D"f
one year may get converted into Deferred Tax Assets (Net) in the next year and vice versa. 4. Curren t Liabilities l
Deferred Tax Liabilities (Net) and Deferred Tax Assets (Net) are only book entries, i.e., Current Liability as defined in Schedule III of the Companies Act, 2013 has been discussed
they are neither actual liability nor actual asset. earlier on Page 1.17.
In case the net balance is credit, it is shown as Deferred Tax Liabilities (Net). In case the Schedule III of the Companies Act, 2013 prescribes that Current Liabilities shall be classified
net balance is debit, it is shown as Deferred Tax Assets (Net). into:
(c) OIiier Long-tenn Liabilities: Long-term Liabilities other than Long-term Borrowings (a) Short-term Borrowings; (b) Trade Payables;
are classified or shown as Other Long-term Liabilities under Non-current Liabilities. They (c) Other Current Liabilities; and (d) Short-term Provisions.
~ ss1f1 ed mt o: (a) Sliort-tenn Borrowings: Short-term borrowings are borrowings of the company which
~ nde Pnynb /es Trade Paya bles have been defined m Schedule III of the Companies are due for payment within 12 months from the date of Balance Sheet or within the

r
' ~ 2013 as follows: period of Operating Cycle. Whether a borrowing is Short-term Borrowing is
/'/ " Trade Payables are the amounts payable for goods purchased and services taken in determined on the date of borrowing. Accordingly, loans that are repayable o~
the no rmal course of busmess " ~ d or within 12 months from the date of Balance Sheet or within the period of
Operating Cycle are classified or shown as Short-term Borrowings. Each Short-term
Trade payables incl ude both sundry creditors and bills payable Borrowing is disclosed or shown in the Note to Accounts on Short-term Borrowings.
(11) Others (if they are payable after more than 12 months of the date of Balance Sheet or The items included are:
after the period of Operating Cycle).
(i) Lo~ d.;__
Trade payab les, if agreed to be settled after121norillisci'f1he-date of Balance Sheet or-after ~ Overdraft or Cash Credit from banks;
the peri od of Operatinl(~ -oNhown.as-!Othed,ong-term Liabilities' under (iii) l...,oans from other parties repaya ble within 12 months from the date of loan;

--
Non-:mrr~ ilitie,;. For example, if goods are pu ich'ased_.tg_ be paid after 24-montho/

be shown as Other Long-term tlabili

e

Examples of Other Long- term Liabiliti

io~ of Operatin!_Cycle is 18 months, it will
of ~ s ! . , } ~8a lanee-6heel-an.d...ih£.?l?

are:
- 1
1/t (~ pasi!K"Dci l
(v) _()th~

1 .8
°'l'
d Advances (Na ture to be specified).
,t,.

e on Redemption of Debentures, if debenetures are show!), as Long- A company has issued 1,000; 9% Debentures ofr 1,000 each on 1st October,
s. 2017 to be redeemed on 31st July, 2018. How will it be shown in the Balance
Premium Paey ble on Redemption of Preference Shares, ii Preference Shares arc redeemable Sheet as at 31st March , 2018?
~ 2 01011 ms pi'rk.ctate.aL-Bala nce,Sfieet or after ~ g_,Cy.cle. (b) Trade Payables: The term 'Trade Payables' is defined in Schedule Ill of the
Lo11g-t,rm Provisio11s: Provis ion is the amount set aside to meet future liability, the Companies Act, 2013 as the amount payable against purchase of goods' or services
am o unt of which canno t be determin ed with accuracy but are estimated. Liability, on the taken in the normal course of business. It includes both sundry creditors and bills
other hand, means a lia bility the amount of which is ascertained, i.e., the amount payable payable. Thus, a liability on account of a transaction which is not the normal business

Iii,,,
1.24 Analysis of Financial Stat ements--<:BSE XII Financi al Statements of a Company 1.25

of the com pany is not shown as Trade Payables. For example, a trading com~y illls (v~ Dividends: Unpaid dividends are di vidends declared but they rem ain

-
its fixed asset through an ageiil'."Th~ em:irtQ.:Jil,' paid'.!'lQ,ll00 as fee. 10,000 will unc a1med by thesliareholders.
\jc,shown as rathe r Current I iabjlities' and not 'Tra~e Pay~ _ (vi) A lication Money Received or All en / o Sewrities and Due for Ref1111d and I11teres l
Tl,ereon: e amount received by the company as app 1cation money or

!!cl Other Current Liabilities: All current liabilities that are not short-term borrowings or
trade payables are dassified or shown as Other Current _Liabilities. These include:
allotment of shares and the company decides not to allot shares to a g!_ij:a nts
(some or all) or minimum subscription is not receive , the application money
(1) _9!,rrrnt Matunfles of 1o,rg-tcrni.-J:k~r-rent-matu-r-ihes of long-term debts, 1.e., becomes refundable. ' - - - - - - - ' - -
amou nt due to be paid within 12 months of the date of Balance Sheet or within The amount refundable along with interest, if any, is classified or s hown as 'Other
the period of Operating Cycle out of long-term borrowings are classified or shown Current Liability' under Current Liabilities in the Note to Accounts on Othe r
as current maturities of long-term debts. Current Liabilities.
(vii) _Unpaid matured deposits and interest accrued thereon.
Difference between Cu"ent Maturities of Long-term Debts and ShorMerm Borrowings:
(viiz) Unpaid matured debentures and interest accrued thereon.
Current Maturities of Long-term Debts is that part of tong-term borrowings which (ix) Calls-in-Advm1ce: The amount received in advance for which call has not been
is due for payment within 12 months from the date of Balance Sheet or within
made is Calls-in-Advance. It is shown as 'Other Current Liability' under Current
the pe,;od of Operating Cycle. For example, Debentures issued on 1st April,
Liabilities in the Note to Accounts on Other Current Liabilities.
2017 for f 5,00, 000 redeemable in five equal yearly instalments starting from
1st April, 2018. f 7,00,000 redeemable within 12 months of the date of Balance (x) Outstanding Expenses: Outstanding Expenses are expenses that remain unpaid at
Sheer, i. e., as ar 31st March, 2018 /assuming Operating Cycle is of 12 months the end of the year. I nese are accounted in the books of account following
or less) will be shown as 'Current Maturities of long-term Debts' under the head Matching Concept.
'Current Liabilities' and sub -head 'Other Current Liabilities and balance f 4,00,000 (x,) Other Payables (Nature to be Specified): Other payables include any other liability that is
will be shown under the head 'Non -current liabilities' and sub-head 'long-term due for payment within 12 months of the date of Balance Sheet or within the peciod
Borrowings'. of Operating Cycle, whichever is longer. Examples are: ~ =• Provident
Short -term Borrowings are the borrowings of the company that are due for Fund Payable, ES~abl~ balances in~OutpuJ CGSI , ut l ~e_t"
payment as on the date of borrowing, within 12 months or within the period of
Operating Cycle from the date of loan. For example, debentures issued to be , . 1.9
redeemed in 10 months from the date of issue is Short-term Borrowing.
Where is 'Calls-in-Advance' shown in the Balance Sheet?
(ii) Interest Acer, ri bt d ;.ul ~ ~ s : Interest accrued but not due means interest
(d) Short-term Provisions: Provision is the amount set aside lo meet future liability,
is provided in the books of account but it has not become due for payment. For example,
amount of which is not determined but estimated. Provision like liability can be
interest is pa}•able half-ye~ e and Qecember. ll the company doses it-&-books
long-term (non-current) provision and short-term (current} provision . Short-term
on 31st March. ii ~ ide inle ~ e uarter January to March followin
PJ ovisions are the provisions for liabilities which are likely to be paid within
Accrua p o accounting. But the in crest will become due for payment on 12 months of the date of Balance Sheet or within the period of Operating Cycle,
30th June along wi th the interest for the quarter April to June. The interest for the w hichever is longer. For exam le, provision for telep hone expenses, rovisio n fo r
qu arter January to March will be classified as ' Interest accrued but not du e'. electricit r rovi · es ene its (torein'Blo ees w o w t retire within
(iii)
ill lerest Accrned a11d D11e 0 11 Borrowings: Interest accrued and du e means interes t is ii" monfhs of l~ , ,' thin the eriod o f O eratin
pro vided in the books of account and is due for payment. In the above example, 1c ever i~ onger), p rovi.s iol1for' tax, etc., are shorf-term provisions.
interest for half-yea r June to December is provided in the books of account but has Ea~ short-ten~ provision is disclosed or shown separately in the Note to
not been paid. It is ' Interest accrued and due' and shown as Other Current Liability. Accounts on Short-term Provisions, which are totalled and a single amount is shown
Remember: Interest Accrued a11d Due mid llltm•st Accrued b11t 110/ D11t' 0 11 borroi;:!Jgs against _ShtrrJ-=lefiif Provisions in the Balance Sheet. fe
are shuw11 as Of1ierC11 rre11 f Lia bilities. Short-term .Provisions are classified in lo: { f .&\. b ~ · D"..,,bo/
(w)
/,~ ncome ~ ived in advance means advc1nce received by U1e (1) P,rovision for Em ployees Benefits; b
company--against-4.v.hjch sale is yet to be made and/or services are yet to be rendered. (ii) J?Javisi oo for ExiwA~
Since the income has not been earned, 1.e., sa les made or services rend ered, it is shown (ii,) Provision for Tax; and

-
as 'Other Current Li~ and when it is earned it is transferred to income. (iv) <other Provisions.
1.26 Analysis of Fina ncial StJtcments- CBSE XII
fi nanci al Statements of a Company 1.27
Liability and Provision [ll ust rati on 3 (Cfnssificatio11 of 'Sliareliolders' F1111ds') . Name the sub-head s under the head
The two terms ' Liability' and 'Pro\lision' differ from each other as follows: 'Shareholders' Funds'.

Liability: The ter m 'Liability ' is used where the amount of th is known. For Solution:
example , sa arv or arc , 201 B amounting to 1,00,000 is payable . It is classified (i) Share Capita l, (ii) Reserves and Surplus, and
or shown as Outstanding Salary (liability) because the liability and the amount is known. (iii) Money Received against Share Wa~nts.
Illu stration 4 (Classification of 'No11 -rnrrent Liabirities' ). Name the sub-head s under the head
Provision: The term ' Provision ' is used where the liabiH
a~ n. It 1s est imated with substantial accuracy. Provision is a charge 'Non-current Liabilities' in the Equity and Liabilities part of the Balance Sheet as per
Schedule Ill of the Companies Act, 2013.
aga inst prof,t , i.e., is debited to Statement of Profit and loss.
Examples of Provision: Provision for Doubtful Debts, Provision for Discount on Debtors, Sol uti on:
Provis ion tor Deprec iation, Provision for Warranties, Provision for Repairs , Provision for (1) Long-term Borrowings, (i1) Deferred Ta.x Liabilities (Net),
Expenses (say Electr icity). Provision for Tax, etc . (iii) Other Long-term Liabilities, and (1v) Long-term Provisi ons.
Ulustration 5 (C/assificatio11 of 'Current Liabilities ). Name the sub-heads under the head 'Current
Difference between Provisi on and Reserve
Liabilities' in the Equity and LiabiUties part of the Balance Sheet.
t 8as/s Provision Rtservt l Solution:
1. Nat1.n 11is a liability or diminution of value of l 1t is shar~oney. (i) Short-term Borrowings, (ii) Trade Payables,
assets or estimated loss. (iii) Other Current Liabilities, and (iv ) Short-term Provisions.
2. Piirpose I
Provision is created for some ~ c Reserve may be created for a specific
~ y depreciation, expenses, etc. purpose fikembenture~on
lll ustration 6 (Reseroes and Surplus). Name any five items that are shown und c>r Rc>serves
and Surplus.
Reserve and It m1y not be createdjc.r a
sp~ific purpose like General Reserve. Soluti on:
3. Chargt Vs. Appropriation I
Provision is~ s t the profit R~serve is an appropriation of profit. It (1) Capital Reserve, (ii) Capital Redemption Rese rve,
and reduces the amount of profit. is made onlrwrten thef@ IS proht. (iii) Se(:urities Premium Reserve, (iv) Debentures Redemption Rc>serve (ORR), and
4. Dlsdosure In Statement of
Profit1.ndlou Statement of Profit and Loss.
I
It is shown under Expenses in the It is shown ln t h e ~ under
Shareholders' Funds.
(v) Revaluation Reserve.
Illustration 7 (Long-ttrm Borrowitigs). Name any four items that are shown u n ~
or lncoml! Statement term Borrowings.
5. Dlsdosurt in &ll1nc, Sh Ht Provisions are shown under Long·term
Provisions or Short·term Provisions or
I Reserve is shown as a separate item
under 'Reserves and Su rplus' in the
Sotuhon:
(1) Debentures/Bonds, (i1) Term-loan from bank/other parties,
n deduction from the value of Equityandliabi!itiespartoftheBa1ance an~ (iv) Long-term Loans and Advances.
concerned assets in the assets part of Sheet
( the Balance Sheet. Illustration 8 (OIiier Current Liabilities). Name any five items that are shown under Other
6. lnvutmtnt Outsldt Business
I
Amount of provision cannot be invested R~can be invested outside the
outside. It always remains in the lrusineSs but in that case it is known
Current Liabilities.
Solution:
business. as fund. (i) Current Maturities of Long-term Debts,
7. L..falRequlnment
I
Provision is made to comply with Accrual cfeating a reserve isa mmet,of financia l
Corw:ept, Prudence Concept and also prudence.
(i1) Interest Accrued but not due on Borrowings,
(iii) Interest Accrued and due> on Borrow ings,
.JI!!... Ibtause or legal requirement (iv) = ~lm tiu11 MDiky tR,b,<labl.o), and
(v) Calls-in-Advance.
1 ~ llJ ustration 2 (Classificalio,1 of Equit;;11d Liabilllies~ e the majo r heads under Equity Illu stration 9. Under which he.ids .:,re the follow ing item s shown in the Balance Sheet of
and Uabilities part 0£ the company's Balance Sheet.
a company as per Schedule Ill?
t Solutio n: Major heads on Equity and Lla biHties part are: (1) Forfeited Shares Account, (i1) Proposed Dividend,
,-- • Sh a reholders' Funds, (ii,) Unclaimed Dividend, ,md (iv) Arrears of Fixed Cumulali\"c Div idend.
:..;sha re App lication Money Pending Allotment, Sol ution:
• Non-cu rrent Liabilities, and (1) Forfeitt'CI Slum-s Acco1111/ is added to the 'Subscribed Capital' under the sub-head
• Current Li a bili ties. Share Capital of the major head Shareholders' Funds in the Equ ity ,md Liabilities
part of the Balance Sheet.

1111....
,"' An"lysis of Financial Statements----CBSE XII 1.29
1.28 FinJncial Statements of a Company
(ii) Proposed Diuidn,d is shown as Contingent Liability in the Notes to Accounts. Illustration 12. Under which main heads and sub-heads of Equity and Lia bili ties part of the
(iii) Unclaimed Divide11d is shown as Other Current Liability under the head Current Balance Sheet as per Schedule m of the Companies Act, 2013 are the following items shown ?
Liabilities in the Equity and Liabilities part of the Balance Sheet. (1) Interest Accrued and due on Secured Loans,
(ir,} Arrears of Fixed Crmw lati.£!:' Qi11idc11cLis sho~ as Contin gent I iahilit;i-Jn the Note to (i1) Interes t Accrued but not due on Unsecured Loans,
cc8unts:° , ti,,- ,k-, (ii,) Debentures Redemption Reserve,
lll usl r.1ti on 10. Under ~ main head and sub-head of ~ ity and Liabilities are the (iu) Capital Redemption Reserve, and
followi ng items shown in a company's Balance Sheet as per Schedule III? (v) Advances from Customers (Long- te rm). f.
(1) Debentu res, (i1) Public Deposits, Sol ut1on:
(iii) Securitirs Premium Reserve, (iv) Capital Reserve, S,No. Items M1inHHd Sub-head
(v) Forfeited Shares Account, (ui) Interest Accru ed and due on Debentures, Other Current Liabilities
Ii i Interest Accrued and due on Current Liabilities
(vii ) BilTs Payable, (vii,) Advances Received from Customers, Secured Loans
(ix) Sundry Credito rs, and (x) Premium on Redemption of Debentures. (ii) Interest Accrued but not due on Current Liabilities Other Current Liabilities

So lutio n : Unsecured Loans

- --
S.No. Sub-hud
(iii) Debentures Redemption Reserve Shareholders' Funds Reserves and Surplus
Items Main He.ad Reserves and Surplus
(iv) Capital Redemption Reserve Shareholders' Funds
U)
(ii)
Debentures
Publlc Deposits
Non-current 'Liabilities
Non-current Liabilities
Long-term Borrowings
Long-term Borrowings
(v) Advances from Cu~tomers Non-<urrent Liabilities I
Other Long-term Liabilities
(long-term)
(ti,) S('(urities Premium Reserve Shareholders' Funds Reserves and Surplus
(iv) I CapitalResm e Shareholders' Funds Reserves and Surplus Illustration 13. Give major heads under which the following items will be shown in a
~l I Forfeited Shares Account Shareholders' Funds Subscribed Capital (Shown by way of addition) company's Balance Sheet as per Schedule III, Part I of the Companies Act, 2013:
(vi) f onInterest Accrued and due
Debentures
Current Liabilities Other Current Liabilities (i) Trade Payables,
(iz) Provision for Tax,
(vi,) Bills Payable / Current Liab;lities Trade Payables
{vmJ · Advance~Received from -I Current Liab1lit~ Other Current liabilities
(iii) Surplus, i.e., Balance in Statement of Profit and Loss (Dr.), and
(iv) Surplus, i.e., Balance in Statement of Profit and Loss.
I Customers - + - - - - - - - - - - f - - ---,--- - - -- - - --
(ix) Sundry Creditors Current liab1hlies Trade Payables Solution·

,,. (, I I Premium on Redemption

of Debentures
Non-current Liab1~ Other Long-term liabilities S. No.I Items MajorHud Sub-hud

(I) I Trade Payables I

_ _ Current Liabilities Trade Payables
Illus trJ ti on 11. Und er which main heads and sub- heads of Equity and Liabilities are the (ii) \ Provision for Tax I Current Liabilities Short-term Provisions
fo ll owing items shown in the Balance Sheet of a company as per Schedu le III? ReseNes and Surplus
(iii) I Surplus, i.e., Balance in Statement I Shareholders' Funds
(1) Unclaimed Di vidend, (i1) Ca lls-in-Arrears,
(i i,) ln teres t Accru ed but not due on Debentures, and
(iii) Calls-in-Advance, of Profit and loss (Dr.) I (As negative amount)
Reserves and Surplus
(iv) I Surplus, i.e., Balance in Statement I Shareholders' Funds
(v) Arrears of Fixed Cumu lati ve Preference Dividend s. of Profit and loss
Solut io n:
1 Il1ustr.1tion 14. HO\v are the fo llowing two items shown in a company's Balance Sheet as
S. No. flems
at 31st March, 2018 as per the requiremen ts of Schedule Ill?
(i ) Undaimed Dividend
General Reserve (since 31st March, 2017) 3,00,000; Surplus, i.e., Balance in Statement of
{ii) Calls-in-Arrears Subscribed Capital (shown by way of deduction Profit and Loss (Debit) as at 31st March, 2018 2,00,000.

Jr
from Subscribed Bui Nor Fully Paid-up)
Solution: BALANCE SHEET as al 31st March, 2018
(iii)
{iv}
Calls -in-Advance I Current liabilities
Interest Accrued but not due / Current liabilities
~her Current Ua~b_ilit_ie_, _ _
Oth er Current Liabilities Part ic ulars l Note No.
on Debentures
EQUITY AND LIABILITIES
(v J / Arrears of Fixed Cumulative I As Contingent Liability -
--......t,olders' Funds
Preference Dividends in Note to Accounts 1,00,000
1 l nd Surplus
 - \I..!)' • V 'u,-'f · ~r_,'j I : , • •-. 1. \.
. 1.31
AnJlysis of Financiill St,1kments- CBSE XII Financial Statements of a Companr ./ ', 'j ). 1~
1.30 · :• II l''
~ l,i_\\ 1 -~ 1 t _1
I
Not, to Accounts Op e ra ting Cycl e k, a/\ W. ~1 'Jr.
1
'f
Part icula rs Operating Cycle is defined in Schedule Ill of the Comp~ bles Act , 2013 as fo ll ow/ '
1. R,s,rves and Surplus " Operating Cycle is the time between the acquisition of assets for processing and
General Reserve (Opening) their realisation in Cash or Cash Equivalents . H operating cycle cannot be identified ,
~ urplus, i.e.. Balance in Statem ent of Profit and loss (Dr. Balance)
it is assumed to be 12 months ."
ltJ.NV C L iJ.),NV -
_ ct us T\o\V d fsCuss ti : :ovc ~ on d itions in detail.
lll uslrJ tion 15. How drt' the following hvo items shown in a company 's B,1lance Sheet as (i) It is Expected to be Realised in or llltcHded for Sale or Con s11111ptio11 i11 the Compa 11 y 's
,11 3 1st Ma rch , 2018 as per Schedule III? Normal Opcrati11g Cycle: Assets that are expected to be realised ,,:ithin the normal
General Reserve (sii,cc 31st M,,rch, 2017) t 4,50,000; Surplus, i.e., Bafance in Statement of Operating Cycle of the business are classified or shown as current assets. For example,
Profit and Loss (Debit) as at 31 st March, 2018 { 6,00,000. Operating Cycle of a business is 18 months. Assets that are expected to be realised
within 18 months are classified or shown as current assets. Assets that are expected
Sol ut io n: BALANCE SHEET a, at 31st March, 2018
to be r ~_fter 18 months are classified or shown as non-current assets.
Partic ula rs Note No.
Assets held and intended for sale within the period of Operating Cycle are classified
EQUITY AND LIABILITIES or shown as current assets. Assets that are not expected to be realised within the period
Shareholders' Funds of normal Operating Cycle of the business are classified or shown as non-current assets,
Reserve.s and Su rplus (1,50,0001
Assets that are expected to be consumed within the period of Operating Cycle of the
Not e to Accounts business are classified or shown as current assets. Assets that are not expected to be
consumed within the period of Operating Cycle of the business are classified or shown
Pumulars
as non-current assets.
1. Reserves and Surplus
(ii) Held Primarily for the Purpose of Trading: An asset is classified or shown as current
Gen eral Re.1erv e (Open ing)
Su rplus, U!., B.i la ncc in Statement of Profit .ind Loss (Dr. Bal.ince)
asset if it is held for the purpose of trading. Thu s, inventory is dassified or shown
as current asset. In vento rv in clud es s tock of raw material, fi ni shed good s good~
~urchased for sa le, stores and spa res.J.Q
11. ASSETS (iii) "Gpected to be Rt'alised within 12 Mo11ths from tlie Rt·porti11g Date, i.e., Balance Sli eet
Date: Assets that are expected to be realised within a period of 12 months from the
Assets, l il,..e li abil ities, J re al so divided into non-current assets and current assets. Non-
curren t as.:-cts i!I defined in a negati ve manner in Schedule III of the Companies Act, 2013 date of Balance Sheet arc classified or shown as current assets. For example, opera ting
"No 11-rn rTettf assets arc tlrose assets which are 11ot CJl"ent assets."
,1<;
cycle of a business is 7 months. Assets that are expected to b e realised within
12 months of the dale of Balance Sheet, irrespective of the operating cycle bein g of
SrncL' non-cu rrent JSsets a re defin ed in a negative manner, it is important to understand
the mean in g of curren t assets. 7 months, assets of that business arc classified or shown as current assets.

Current Jc;sets ,He defi nl'd in Schedule III of the Companies Act, 2013 as follows: (i<') Cash and Casli Eq11ivalrnts U11lcss they arr Restnctt'd from being £x clia11ged or Used to
Curren t Assets an.' those asse ts wh ich are: Sett It 11 Liability for at ltast 12 Mo11ths aft.:r tile Rf'porti11g D11tc, i.e., Bala11Ct' Slicct Dntc:
Cash and C1sh Equivalents are always classified or shown as current ..1ssets. Ho\,·ever,
(1 ) L''< ptX IL•d to be rea lised in or intend ed for sale or consumption in the company's
norma l operating cycle; or if s current
1Eoc:c7Pilb-Mtk
(11) hdd p rimJ rily for lhc.· pu rpose of lrJd ing; or
ut · e the
(iii ) expected to be rec1 l1sed wit hin 12 months from the reporting date, 1.c., Bc1lc1nce Sheet
d,1tc; or c~!="'~ :...'.'.:'.!.'.'.:~~~~~~~~::,::::'._.'.'.:_:.~ ::!:~:'""'.'..::'.:'.::::=:::~ = --If-
Illus tra tio n 16. Classify the following into non-current assets and current asst>ts ancl give
(ti.') C 1sh an d Cash Eq ui v.1/cnts un less th ey Jre rc str icll'd from being exchanged or

tern/
used to settle a liJbility for c1t lec1s t 12 mon ths c1ftc.•r the reporting dr1tc, i.e., Billance rea sons for such classification:
Sheet dJ!c . (i) A company h,1 s an opcr.1ting cycle of 11 months and the expected period of realisat ion
Defore we di:-:cu :,s th e above cond it io ns, le t us u:cc1pitulutc the meaning o f the of Trc1de Recei vables is 10 months .
?p~r~l.ing Cyd e. It has the ~a me mca ni n~ J ~ .\\.'.J s d iscussed at the time of clJssificJtion of (ii) A company has ,111 opcr.1ting cycle of 11 months and the ex pected period of realisation
'1.:ib1 1J t1t•s in to non-cu rren t an d current l1abll1t1L'S on Pa ge 1.1 7 of thi s Chapter . of Trade Rccei v.1bks is 12 months.

....
r Analysis of Financia l St atements- CBSE XII
v,J O ~--,.J)<}J., 1 33
Fij'.§'~'.:JJ,5ia~melt_&'of a Compan y . . . •
1.32
'v<:11/ II should be noted that the term ' depreciation' is used for wntmg o/1 (l,_xed)
(m) A company has an operating cycle of 11 months and the expected period of realisation
,f-.• j tangible as~ets over its useful life and the term 'amortisation' is used for writing
of Trade Receivables is 15 months. ,- \ / off (fixed) intangible asset over its useful life.
(iv) A company has an operating cycle of 20 months and the expected period of realisation , \J"~iii) Capital Work-in-Progress means (fixed) tangible assets under construction .

... o f Trade Receivables is 15 months.

('u) A company has an operating cycle of 20 months and the expected period of realisation
of Trade Receivables is 24 month s.
L
\ ~
1
(iv) Intangible Assets under Development means (fixed) intangible assets like patents,
intellectual property rights, etc., under development.
(b) Non-Current I11vestments: Non-current Investments are inveshnents which are held
Solu tion : STATEMENT SHOWING CLASSIFICATION OF TRACE RECEIVABLES not with the purpose to resell but to retain them. Non-current Inveshnents are further
classified into "Trade Investments'' and "Other Investments" .
Cose I As Current Assets
o,
! Reason Trade Iuvestments are investments made by a company in shares or debentures of another
company to promote its own trade and business.
. Non-current Assets I
r;i I Cu"ent Assets Expected Realisation Period
- is less than the Operating Cycle Period, and
Other Inveshnents are those investments which are not trade inves tments .
Investments are classified or shown under the following heads:
is within 12 months from the date of Balance Sheet. (i) Investments in Pcopertr
~ Current Assets Expected Realisation Period is 12 months which is equal to a period of 12 months (ii) Investments in Equity Jpstp1mc,cts;-
(Third Condition) from the date of Balance Sheet although it is more than the
(iii) Ifivestments in Preference Shares;
Operating Cycle period.
(iv)- Inve5fiTients in Gove rnment o r Ta,st
Expected Realisaton Period is more than the Operating Cycle period and a...1t2.exceeds
{111 i Non-current Assets (v)7nvestments in Debentures onds;
the period of 12 months from the date of Balance Sheet. "X (v1) I en s m Mutual Funds;
Expected Realisation period is less than the Operating Cycle period although it is
(iv) Cu rren t Assets (vii) InVestmenfs m Partnershii, Eh:ms· and
more than the period of 12 months from the date of Balance Sheet.
(viit) 0tlrer-N on~ ur ren'tlnvestments (Nature to be specified).
(v) Non-current Assets Expected Realisation period is more than the Operating Cycle period and also
(c) Deferred Tax Assets (Net) and Deferred Tax Liabilities (Net): It would have been
exceeds the period of 12 months from the date of Balance Sheet
observed from the form of Balance Sheet that Deferred Tax Liabilities (Net) appears under
I. No n-Cu rren ! Asse ts Non-current Liabilities in the Equity and Liabilities part of the Balance Sheet and Deferred
Tax Assets (Net) appears under Non-current Assets in the Assets part of the Balance
Non-cur rent Assets are classified into following five major heads:
Sheet. The two terms are interrelated as balance in Deferred Tax Liabilities (Net) in one
(n) Fi xed Assets; (b) Non-current Investments;
year may get converted into Deferred Tax Assets (Net) in the next year and vice versa .
(c) Deferred Tax Assets (Net); (d) Long-term Loans and Advances; and
It has been discussed in detail under 'Deferred Tax Liabilities' earlier in the Chapter
(t') Other Non-Curren t Assets.
on Page 1.21.
(a) Fixed Assets: Fixed assets ,.uc those assets which are held by a company not for the
pur pose of sale but for the purpose to increase earnings of the business. They are IM PORT ANT
used for a long time to ea rn profit. Fixed assets are categorised into: It is important to keep in mind that all assets and liabilities are classified or shown in
(1) Tangible Asse ts; (ii) Intangible Assets; the Balance Sheet as non-current and current on the basis of the definition given in
Schedule Ill of the Companies Act. 2013 . The definitions have been discussed in detail

I-
(111) Capital Work-in-Progress; and (iv) Intangible Assets under Development. earlier in this Chapter on Page 1 . 17 (Liabilities) and Page 1. 30 (Assets! .
(i) Tn11gib!t? Assets .Jre the assets which have physical existence, i.e., they can be seen
and louched. Exa mpl es of (Fi xed) Tangible Assets are: Land, Build in , Machi~, (d) Long-term Loans aud Advances: Long-term loans and advances are those loans and
furniture an d Fi xtures, Com uter , i ment etc. advanctjs that are expected to be recei ved back in cash or ~ e., in the form of an
asset after 12 months from the date of Balance~ ota!ter the period of Operating
(ii ) 11tnngible Assets are the assets which do not have physical existence and, thus,
Cycle. These are classified into:
cannot be seen and touched. Examples of (Fixed) Intangible Assets arc:
(i) Cap itol AdPOllffS:' Capital advances are those advances which are advanced for
oftwa_~Ma acquiring fixed assets. Normally, s uch advances are not received back in cash
but are received in the form of an asset. It n1eans capital adv_a nces get converted
f into asset of the company . Fixed assets are non -cu rrent assets, th erefore, ca pit~
( / Cldva;,ces .1re also classified ofslfo'\\·n as LOng;;-tenn Advance, i.e., n on -current asset., •

la....___ --..:...
1
~\'\ J,t.l r-- 1/, - "- " ~ J{;JVV:' ' , -J
 1.34
(ii) Sernrity D~
AnJl ysis of Financial Statements-C BSE XII

s;, Security deposits that are given for a long period, i.e., for a
Financial Slatemenls of a Company
fa
(b) Invwtories (stock) held for the purpose of ade in the ordinary cou rse of bu m ess,
.
1
t
period which is beyond the period of 12 months from the date of Balance Sheet i.e., for manufacturing or trad ing of good are classified or show n as current assets
or after the period of Operating Cycle of the business are classified or shown
as long-term advances, i.e., non-current asset. Exaµiple s--of-seteurity-deposi-re
secur,!!Y.-deposit for cJectricit!JEd telephone, e~
because they are held with the purpose to nvert them into Cash and Cash Equi valen~ ~ /w
within a short period. It includes;
(i) Raw Materials~ (ii) W rk-in-Pro r ;
J,J't --,v·
(iii) Fi-;;is'"~d Goods:,, (iv) ock-in-Tr fo r goods acqu ired for din g );
(ii,) Other Loans and Advances (Na tn re to be specified): Long-term loans and advances,
(v) ;::::=::, •-> c_._,,. { f-' .,r -
(v1) !:£_ose Tools etc _/_ n,....,,.,.. , .Sw.,.J,W,,U,,/ '
othe r than th ose classified or shown under Capital Advances an d Security
Deposits are classified or shown as Other Loans and Advances. Other loans and (c) Trade Receivables means amounts receivable for sale of goods or services rend e red
advances are shown according to its nature. Examples of such loans and advances by the company in the normal course of business. They are classified or shown as
current assets if they are receivable within a period of 12 months from the date of
are long-te rm loans to employees and long-term advances to suppliers, etc.
Balance Sheet or within the period of operating cycle of the business. Trade Receivables
(e) bt1;e,
No11-~ l other non-cu~ ssets that do not tali mto any of includes both Debtors and Bills Receivable.
mfti'bove classifications (categories) are classified or shown as Other Non-current Provision for Doubtfid Debts7rtnr-p~on made to mee t the possible loss of bad
Asse ts. They are classified into: debts as a percentage of Net Debtors (i.e., Sundry Debtors - Bad Debts).
(1) Long-term Trade Receivabl§: Trade Receivables are classifi~a or shown as long- Provision for Doubtful Debts is disclosed under the relevant head separately. It leads
term' trade receivables, i.e., non-current asset if the amount is receivable after to two approaches as follows;
_\IJ 12__!!lonth.s_b:om_tbe4,a.te..o_LBalaru:e Sheet or after the period -or CJperating Cycle, First Approac/J : The ~ f Provision for Doubtful Debts is shown as p rovision
vr u.nd#"e,ther Long-term Provisions or ShorHerm Provisions dependin g on\Vhet~ r
(ii) Others: Besides trade receivables there may be other assets such as unamortised Tra ~ivab1cs : i:e Long tum or 9lmtt-term, and -
ex ~losses, insurance claim receivable or amount due for asset sold, etc.~ Second A tful Debts is shown b .l.Y"Y of
Such assets are classified or _shown under Otfitr:Non-cur~r.ifssets. -J.. ; ,., de uction from the amount shown under°9Trade Receivables.
It may be recapitulated that 5)~11h::5_D~Llss;,e o Oeben tures-a11d [~ss on J In our opinion, seco11d approaclr is more appropriate and sliould be followed.
Issue of Debe1111 res are writleu off III more t mtin I ear. Unamortised expe11ses oss~; ' 0 Let us take an example to- understand· it.
tho wn en o a er 12 mo11f/,.:; _ t or a fer the er.1o O pe.rpthig 3hl Ltd. has debtors.oL {..S,00,000'1nd-it-ha-s-made provision for·doubtful debts·against
Cyc~ is later are classified or shown as Other No11-curre11t Assets. y - it of { 50,000. It can be shown as follows:
2. Current Asse ts First Approac/1: When provision is shown as Short-term Provisions:
Current Assets are classified or shown under following six heads: Notes to Accounts
(a) Current In ves tments; (b) Inventories; Particulars

D (c) Trade Receiva bles;

(e) Short-term Loans and Advances; and
Let us discuss them in detail:
(a) C11rre11t
• h' In vestments
. are
(d) Cash and Cash Equivalents;
(/) Other Current Assets.

. those investments which are held to be converte d mto

w, t m a short penod, ,.e., ,v ith in 12 months from the date of purchase of.
.
t
cash
1. Short-term Provisions
Provision for Doubtful Debts
2. Trade Receivables
Debtors

Seco nd Approach: When provision is shown by way of deduction from Trade Receivables:
50,000

5,00,000

These are to be classified into: mves ment. Note to Accounts

(i)' In ves tments in Equ ity Instrum ents; Particulars
( ~1) ' Investments in Prefe rence Shares; 1. Trade Rtcelvablu
~ i) In ves tments in Government or Trust Securities; Debtors 5,00,000
Lw: Provision for Ooub1ful Debt s 50,000 4,50,000
(~v) In vestments in Deben tu res or Bonds;
{¥) In ves tments in Mutual Funds·
(v,) In ves tments in Partnership Fi ~ms; and
/t 1.10
As ho k, the Accountant of Bes t Ba rcode Sy s tems Lt d ., has s ho wn Bill s
(vji) Other In vestments (Natu re to be specified ). Receiva ble as Trade Receivables. Is he correc t in his approach?

llai..
, 1.36 Analysis of Financial Statements--CBSE XII
fin ancial Statemen ts of a Company
1.37
(d) Cash and Cash Equivalents: Schedule 111 requires that Cash and Cash Equivalents be Illustratio n 18 (Classification of 'Non-current Assets'). Name the sub-heads under the head
classified or shown as follows: 'Non-current Assets' in the Assets part of the Balance Sheet as per Schedule lII of the
(I) Balances with banks; Companies Act, 2013.
(i1) C~ hand; Solution:
(i) Fixed Assets, (ii) Non-current Investments,
(iii) Cash in Hand;
(iii) Deferred Tax Asset (Net), (iv) Long-term Loans and Advances, and
(iv)O~
(v) Other Non-current Assets.
(v) Earmarked balances with banks (for example, U_!!J;,aid Dividend);

,
Ill u s tration 19 (Classification of 'Fixed Assets') . Name the sub-heads under the head 'Fixed
(v1) Balance with banks held as Margin Money; ¥'d Assets' in the Assets part of the Balance Sheet as per Schedule III of the Companies Act, 2013.
(vii) B ank Deposits with more than 12 months maturity.
Solution:
(e) S1,orl-tenn Loans and Advances: Short-term Loans and Advances are those loans
(i) Tangible Assets, (ii) Intangible Assets,
and advances which are expected to be realised within 12 months from the date of (iii) Capital Work-in-Progress, and (iv) Intangible Assets under Development.
Balance Sheet or within the period of operating cycle, if operating cycle is more.
Illus tration 20 (Classification of 'Current Assets') . Name the sub-heads under the head
(f) Ot/Jer Current Assets: All other current assets that do not fall in any of the above 'Current Assets' in the Assets part of the Balance Sheet as per Schedule III of the Companies
' dassifications or categories under Cturent Assets are classified or shown as Other
Act, 2013.
Current Assets. Examples of Other Current Assets are Unamortisecl expenses/losses
Solu tion:
1. (to be written off within 12 months.Jr.om the date of Balance Sheet or within--rrie
period of OperaTmg9 -cJe)J_LeJ?_ai9._ex penses, dividend recejvable a_rd acJ.,aA1ee taxes
(i) Current Investments, (i1) Inventories,
(iii) Trade Receivables, (iv) Cash and Cash Equivalents,
are cJassified or shown as Other-ctirrent Assets. ( ~ '"- (v1) Other Current Assets.
(v) Short-term Loans and Advances, and
3. Co nt i n gen t Liabi lities and Commitments ~ -~ ) Jllust ratio n 21 (Tangible Assets). Name any five items of Tangible Assets.
(n) Conti11ge11t Liabilities are those liabilities which may or may not a¥ise because they Solution:
are dependent on a happening in future. For example, a claim is filed against the (i) Land, (i1) Building, (iii) Plant and Machinery,
company in a consumer court by a customer. The court may hold the company at (iv) Furniture and Fixtures, and (v) Vehicles.
fault an d m ay impose penalty. It may happen otherwise also. Whether the company Illus tratio n 22 (Intangible Assets). Name any five items of Intangible Assets.
has a liability or not is dependent on court order. Thus, it is contingent liability.
Solution:
'i_ Proposed Dividend for the current year is also shown as con.lingenL /iabi/ity b e ~ is (ii) Brand(Trademark, (iii) Computer Software,
(i) Goodwill,
'j subject lo approval by the shareholders.
(iv) Mining Rights, and (v) Licences and Franchise.
Confingent liability is not recorded in the books of account but is disclosed in the
Illustration 23 (Non-current Investment). List five items which are included under the head
Notes to Accounts for the information of the users. It is to be classified into:
'Non-current Investinent'.
(i) Claims against the company not acknowledged as debts;
Solution:
(i1) Bills Receivable discounted from Bank not yet due for p~ent; (ii) Investment in Equity Instruments,
(i) Investment in Property,
-. C
·_ \I
It"-'~.
=----= ,
(iii) Pronn<e'1 nividend (Current Year)· and
(iii) Investment in Preference Shares, (iv) Investment in Debentures or Bonds, and
. (iv) Other mooey for w hich lh~ m paoy j 5 contin~y liable. -,,... (v) Investment in Mutual Funds.
r· t (b) Com m1tme11ts mean financial commitments due to activities agreed to by the company Illustration 24 (Inventories). List five items that are included unde r InveQ.tories.
to be under taken by it in future. They are to be classified into:
Solution:
(1) Es timated amo un ts of contracts remaining to be executed on Capital Account and (i) Raw Materials, (ii) Work-in-Pr~ ress, (.i ii) Fi n ished Goods,
n o t -pFB.,iElea ftn ,
(iv) Sto ck-in-Trade, and (v) Loose Tools
(i1) UncalleEl--l-i.hiliJ:¥-on...h a ~ ther investments partly paid; and
Ulustr~ ul Investments). List five items that are included under Current Investments.
(iii) Other commitments (Nature to be specified).
Solution:
lll ustr~tion 17 (Classification of A ssets ). State the major heads under which the items (i) Investment in Equity Instruments,
•qpe".nng m the Assets p art of the company's Balance Sheet are classified. (i1) Investment in Preference Shares,
efoJuhon; The ma1or heads on Assets pa rt are; (iii) Investment in Governmen t or Trust Securities,
(t) Non-cu rrent Assets, an d (ii) Current Assets. (iv) Investment in Debenture s or Bonds, and

....
(v) Inves tme nt in Mutual Funds.