Crack Grade B 1

Basics of Financial Statements

All business establishments and companies are required to keep a record of their day to
day business and financial transactions in order to know the result of their operations. The
said record is referred to as ―book of accounts‖. For preparation of annual accounts, the
maintenance of proper books of account is a must.

Meaning of Financial Statements

As per section 2(40) of the Companies Act, financial statement in relation to a company,
includes:

 a balance sheet as at the end of the financial year;

 a profit and loss account, or in the case of a company carrying on any activity not for
profit, an
 income and expenditure account for the financial year;
 cash flow statement for the financial year;
 a statement of changes in equity, if applicable; and
 any explanatory note annexed to, or forming part of, any document

Financial Year

―Financial year‖, in relation to any company or body corporate, means the period ending on
the 31st day of March every year, and where it has been incorporated on or after the 1st
day of January of a year, the period ending on the 31st day of March of the following year.

Requirement of keeping Books of Accounts (Section 128)

Every company shall prepare and keep at its registered office books of account and other
relevant books and papers and financial statement for every financial year.

 The books of accounts must be kept on accrual basis and according to the double
entry system of accounting.

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 Books of Accounts must give a true and fair picture.

 Books of Accounts shall be kept at Registered office of the company.

Place of keeping Books of Account

Section 128(1) of the Act requires every company to prepare and keep the books of account
and other relevant books and papers and financial statements at its registered office.
However, all or any of the books of accounts may be kept at such other place in India as
the Board of directors may decide. When the Board so decides, the company is required
within 7 days of such decision to file with the Registrar of Companies a notice in writing
giving full address of that other place. Such intimation is to be made in e-form AOC-5 to
the RoC.

Preservation of Books of Accounts

The books of account of every company shall be kept in good order for a period related to
not less than eight financial years immediately preceding a financial year, or where the
company had been in existence for a period less than eight years, in respect of all the
preceding years.

Persons responsible to maintain Books

The following persons are responsible to take all reasonable steps to secure Compliance by
the company with the requirement of maintenance of books of accounts etc.

(i) Managing Director;

(ii) Whole-Time Director, in charge of finance;

(iii) Chief Financial Officer; or

(iv) Any other person of a company charged by the Board with duty of complying with
provisions.

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Financial Statements

The financial statements shall give a true and fair view of the state of affairs of the
company or companies in the form as provided for different class or classes in Schedule III
and shall comply with accounting standards notified under section 133 of the Companies
Act. The financial statement shall be laid in the annual general meeting of that financial
year.

Financial Statement must give True and Fair View

True and Fair view in respect of financial statement means-

 Financial statements and items contained should comply with accounting standards
notified under Section 133 of the Companies Act;
 Financial statement shall be in form or forms as provided for different class or
classes of companies in Schedule III
 In the case of an insurance company, any matters which are not required to be
disclosed by the Insurance Act, 1938, or the Insurance Regulatory and Development
Authority Act, 1999;
 In the case of a banking company, any matters which are not required to be
disclosed by the Banking Regulation Act, 1949;
 In the case of a company engaged in the generation or supply of electricity, any
matters which are not required to be disclosed by the Electricity Act, 2003;

Where the financial statements of a company do not comply with the accounting standards
referred to in Section 129 (1), the company shall disclose in its financial statements, the
deviation from the accounting standards, the reasons for such deviation and the financial
effects, if any, arising out of such deviation.

At every annual general meeting of a company, the Board of Directors of the company shall
lay before such meeting financial statements for the financial year.

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Signing of Financial Statement (Section 134)

The financial statement, including consolidated financial statement, if any, shall be

approved by the Board of Directors before they are signed on behalf of the Board by the
chairperson of the company where he is authorised by the Board or by two directors out of
which one shall be managing director, if any, and the Chief Executive Officer, the Chief
Financial Officer and the company secretary of the company, wherever they are appointed,
or in the case of One Person Company, only by one director, for submission to the auditor
for his report thereon.

The auditors’ report shall be attached to every financial statement. A report by its Board of
Directors shall also be attached to statements laid before a company in general meeting.

Right of members to copies of Audited Financial Stements:

According to section 136 of the Act, a copy of financial statements, auditor’s report along
with every other document required by law to be attached to the financial statements
which are to be laid before a company in its general meeting, shall be sent to every member
of the Company, every trustee for the debenture holder, who are so entitled, not less than
twenty one days before the date of the meeting.

Manner of Circulation of Financial Statements

Further in case of all listed companies and such public companies which have a net worth
of more than one crore rupees and turnover of more than ten crore rupees, the financial
statements may be sent-

 By electronic mode to such members whose shareholding is in dematerialized format

and whose email ids are registered with Depository for communication purposes;
 Where shareholding is held otherwise than by dematerialized format, to such
members who have positively consented in writing for receiving by electronic mode;
and
 By dispatch of physical copies through any recognized mode of delivery, in all other
cases.

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Every listed company is also required to place its financial statements including
consolidated financial statements, if any, and all other documents required to be attached
thereto, on its website, which is maintained by or on behalf of the company.

 According to Regulation 29 of SEBI (LODR) Regulations, 2015, the listed entity shall
give prior intimation to stock exchange about the meeting of the board of directors
regarding financial results viz. quarterly, half yearly, or annual, as the case may be.
 Intimation shall be given at least five days in advance (excluding the date of the
intimation and date of the meeting), and such intimation shall include the date of
such meeting of board of directors

Copy of Financial Statement to be Filed with Registrar

Section 137 of the Act, requires every company to file the financial statements including
consolidated financial statement together with Form AOC- 4 and AOC-4 (CFS) with the
Registrar of Companies (RoC) within 30 days from the day on which the annual general
meeting held and adopted the financial statements.

The following class of companies shall file their financial statements and other documents
under section 137 of the Act with the Registrar in e-Form AOC-4 XBRL:

(i) companies listed with stock exchanges in India and their Indian subsidiaries;

(ii) companies having paid up capital of five crore rupees or above;

(iii) companies having turnover of one hundred crore rupees or above;

(iv) all companies which are required to prepare their financial statements in accordance
with Companies (Indian Accounting Standards) Rules, 2015.

Statement of Profit & Loss

Name of the Company: …………………………………………………

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Profit and Loss Statement for the year ended:……………………………………….. (Rs in

……..)

Figures for Figures for

the the
Note
Particulars Current Previous
No.
Reporting Reporting
Period Period
I Revenue from Operations XXX XXX
II Other Income XXX XXX
III Total Revenue (I+II) XXX XXX
Expenses:
Cost of Materials Consumed
Purchases of Stock-In-Trade
Changes in Inventories of
Finished Goods / Work- in XXX XXX
IV progress and Stock-In-Trade XXX XXX
Employee Benefits Expense XXX XXX
Finance Costs
Depreciation and
Amortization Expense Other
Expenses
Total Expenses XXX XXX
Profit before Exceptional &
V Extraordinary Items and Tax XXX XXX
(III – IV)
VI Exceptional Items XXX XXX
Profit before Extraordinary
VII XXX XXX
Items and TAX (V-VI)
VIII Extraordinary Items XXX XXX
IX Profit before Tax (VII-VIII) XXX XXX
Tax Expenses: XXX XXX
X
(1) Current Tax XXX XXX

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(2) Deferred Tax

Profit /(Loss) for the period
XI from Continuing Operations XXX XXX
(IX – X)
Profit /(Loss) from
XII XXX XXX
Discontinuing Operations
Tax Expense of Discontinuing
XIII XXX XXX
Operations
Profit /(Loss) from
Discontinuing Operations
XIV XXX XXX
(After Tax)
(XII-XIII)
Profit / (Loss) for the period
XV XXX XXX
(XI + XIV)
Earnings per Equity Share:
XVI (1) Basic XXX XXX
(2) Diluted

General Instructions for preparation of Statement of P & L:

1. Revenue from Operations

(a) Sale of Products

(b) Sale of Services

(c) Other Operating Revenues

(d) Less: Excise Duty

2. Finance Costs: Finance Costs shall be classified as –

(a) Interest Expenses,

(b) Other Borrowing Costs,

(c) Applicable Net Gain / Loss on Foreign Currency Transactions and Translation.

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3. Other Income: Other Income shall be classified as –

(a) Interest Income (in case of a Company other than a Finance Company),

(b) Dividend Income,

(c) Net Gain/Loss on Sale of Investments,

(d) Other Non-Operating Income (Net of Expenses directly attributable to such

income).

(i) Aggregate Expenditure and Income on the following items referred below.

(a) Employee Benefits, Expense, Income Items, etc:

(i) Salaries & Wages,

(ii) Contribution to PF and Other Funds,

(iii) Expense on ESOP and Employee Stock Purchase Plan (ESPP),

(iv) Staff Welfare Expenses]

(b) Depreciation and Amortization Expenses,

(c) Any item of Income of Expenditure which exceeds 1% of Revenue from Operations
or ` 1,00,000 whichever is higher,

(d) Interest Income,

(e) Interest Expense,

(f) Dividend Income,

(g) Net Gain / Loss on Sale of Investments,

(h) Adjustments to the Carrying Amount of Investments,

(i) Net Gain / Loss on Foreign Currency Transaction & Translation (other than
considered as Finance Cost),
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(j) Payments to the Auditor as – (a) Auditor, (b) For Taxation Matters, (c) For
Company Law Matters, (d) For Management Services, (e) For other Services, (f) For
Reimbursement of Expenses,

(k) Item of Exceptional and Extraordinary Nature,

(l) Prior Period Items.

(ii) Materials, Goods, Services, etc.

(a) In the case of Manufacturing Companies –

• Raw Materials under broad heads.

• Goods Purchased under broad heads.

(b) In the case of Trading Companies, Purchases in respect of goods Traded in by the
Company under broad heads.

(c) In the case of Companies rendering or supplying services, Gross Income derived
from Services Rendered or Supplied, under broad heads.

(iii) In the case of all concerns having Works-in-Progress, Works-in-Progress under broad
heads.

(iv) Reserves: Creation & Utilisation:

(a) The aggregate, if materials, of any amounts set aside or proposed to be set aside,
to Reserve, but not including Provisions made to meet any Specific Liability,
Contingency or Commitment known to exist at the date as to which the Balance –
Sheet is made up.

(b) The aggregate, if material, of any amounts withdrawn from such Reserves.

(v) Provision: Creation & Utilisation:

(a) The aggregate, if material, of the amounts set aside to Provisions made for
meeting Specific Liabilities, Contingencies or Commitments.

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(b) The aggregate, if material, of the amounts withdrawn from such provisions, as no
longer required.

(vI) Expenses : Expenditure incurred on each of the following items, separately for each
item:

(a) Consumption of Stores and Spare Parts,

(b) Power and Fuel,

(c) Rent,

(d) Repairs to Buildings,

(e) Repairs to Machinery,

(f) Repairs to Machinery,

(g) Insurance,

(h) Rates and Taxes, excluding, Taxes on Income,

(i) Miscellaneous Expenses.

(vii) Subsidiaries Information:

(a) Dividends from Subsidiary Compani0es.

(b) Provisions for Losses of Subsidiary Companies.

(viii) FOREX Information: The P&L A/c shall also contain by way of a Note the following
Information, namely –

(a) Value of Imports Calculated on CIF basis by the Company during the Financial
Year in respect of – (I) Raw Materials, (II) Components and Spare Parts, (III) Capital
Goods,

(b) Expenditure in Foreign Currency during the Financial Year on account of Royalty,
Know-How, Professional and Consultation Fees, Interest, and Other Matters,

(c) Total Value if all Imported Raw Materials, Spare Parts and Components
consumed during the Financial Year and the Total Value of all Indigenous Raw

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Materials, Spare Parts and Components similarly consumed and the Percentage of
each to the Total Consumption,

Balance Sheet

PART I – FORM OF BALANCE SHEET

Name of the Company:……………………………………………….
Balance Sheet as at: …………………………………………………… (Rs in……)
Figures as
Figures as
at the end
at the end
of the
Particulars Note of Current
Previous
Reporting
Reporting
Period
Period

EQUITY AND LIABILITIES

Shareholders’ Funds
(a) Share Capital
(b) Reserves & Surplus
(c) Money Received
against Share Warrants

Share Application money

pending allotment

Non-Current Liabilities
(a) Long Term Borrowings
(b) DTL (Net)
(c) Other Long Term
Liabilities
(d) Long Term Provisions

Current Liabilities
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(a) Short Term Borrowings

(b) Trade Payables
(c) Other Current
Liabilities
(d) Short Term Provisions
Total
ASSETS
Non-Current Assets
(a) Fixed Assets
(i) Tangible Assets
(ii) Intangible Assets
(iii) Capital WIP
(iv) Intangible Assets
under Development
(b) Non-Current
Investment
(c) DTA (Net)
(d) Long Term Loans &
Advances
(e) Other Non-Current
Assets

Current Assets
(a) Current Investments
(b) Inventories
(c) Trade Receivables
(d) Cash & Cash
Equivalents
(e) Short Term Loans &
Advances
(f) Other Current Assets
Total

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General Instructions for Preparation of Balance Sheet

An asset shall be classified as current when it satisfies any of the following criteria:—

(a) it is expected to be realised in, or is intended for sale or consumption in, the company’s
normal operating cycle;

(b) it is held primarily for the purpose of being traded;

(c) it is expected to be realised within twelve months after the reporting date; or

(d) it is cash or cash equivalent unless it is restricted from being exchanged or used to
settle a liability for at least twelve months after the reporting date.

All other assets shall be classified as non-current.

An operating cycle is the time between the acquisition of assets for processing and their
realisation in cash or cash equivalents. Where the normal operating cycle cannot be
identified, it is assumed to have a duration of twelve months.

A liability shall be classified as current when it satisfies any of the following criteria:—

(a) it is expected to be settled in the company’s normal operating cycle;

(b) it is held primarily for the purpose of being traded;

(c) it is due to be settled within twelve months after the reporting date; or

(d) the company does not have an unconditional right to defer settlement of the liability for
at least twelve months after the reporting date. Terms of a liability that could, at the option
of the counterparty, result in its settlement by the issue of equity instruments do not affect
its classification.

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All other liabilities shall be classified as non-current.

A receivable shall be classified as a ―trade receivable‖ if it is in respect of the amount due

on account of goods sold or services rendered in the normal course of business.

A payable shall be classified as a ―trade payable‖ if it is in respect of the amount due on

account of goods purchased or services received in the normal course of business.

A company shall disclose the following in the notes to accounts.

A. Share Capital

For each class of share capital (different classes of preference shares to be treated
separately):

(a) the number and amount of shares authorised;

(b) the number of shares issued, subscribed and fully paid, and subscribed but not fully
paid;

(c) par value per share;

(d) a reconciliation of the number of shares outstanding at the beginning and at the end of
the reporting period;

(e) the rights, preferences and restrictions attaching to each class of shares including
restrictions on the distribution of dividends and the repayment of capital;

B. Reserves and Surplus

(i) Reserves and Surplus shall be classified as:

(a) Capital Reserves;

(b) Capital Redemption Reserve;

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(c) Securities Premium [Omitted];

(d) debenture Redemption Reserve;

(e) Revaluation Reserve;

C. Long-Term Borrowings

(i) Long-term borrowings shall be classified as:

(a) Bonds/debentures;

(b) Term loans:

(A) from banks.

(B) from other parties.

(c) Deferred payment liabilities;

(d) Deposits;

(e) Loans and advances from related parties;

(ii) Borrowings shall further be sub-classified as secured and unsecured. Nature of security
shall be specified separately in each case.

(iii) Where loans have been guaranteed by Directors or others, the aggregate amount of
such loans under each head shall be disclosed.

D. Other Long-term Liabilities

Other Long-term Liabilities shall be classified as:

(a) Trade payables;

(b) Others.

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E. Long-term provisions

The amounts shall be classified as:

(a) Provision for employee benefits;

(b) Others (specify nature).

F. Short-term borrowings

(i) Short-term borrowings shall be classified as:

(a) Loans repayable on demand;

(A) from banks.

(B) from other parties.

(b) Loans and advances from related parties;

(c) Deposits;

(d) Other loans and advances (specify nature).

(ii) Borrowings shall further be sub-classified as secured and unsecured. Nature of security
shall be specified separately in each case.

H. Short-term provisions

The amounts shall be classified as:

a. Provision for employee benefits.

b. Others (specify nature).

I. Property, Plant and Equipment

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(i) Classification shall be given as:

(a) Land;

(b) Buildings;

(c) Plant and Equipment;

(d) Furniture and Fixtures;

(e) Vehicles;

(f) Office equipment;

(g) Others (specify nature).

J. Intangible assets

(i) Classification shall be given as:

(a) Goodwill;

(b) Brands /trademarks;

(c) Computer software;

(d) Mastheads and publishing titles;

(e) Mining rights;

(f) Copyrights, and patents and other intellectual property rights, services and
operating rights;

(g) Recipes, formulae, models, designs and prototypes;

(h) Licences and franchise;

K. Non-current investments

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(i) Non-current investments shall be classified as trade investments and other investments
and further classified as:

(a) Investment property;

(b) Investments in Equity Instruments;

(c) Investments in preference shares;

(d) Investments in Government or trust securities;

(e) Investments in debentures or bonds;

(f) Investments in Mutual Funds;

(g) Investments in partnership firms;

(h) Other non-current investments (specify nature).

L. Long-term loans and advances

(i) Long-term loans and advances shall be classified as:

(a) Capital Advances;

(b) Loans and advances to related parties (giving details thereof);

(c) Other loans and advances (specify nature).

(ii) The above shall also be separately sub-classified as:

(a) Secured, considered good;

(b) Unsecured, considered good;

(c) Doubtful.

N. Current Investments

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(i) Current investments shall be classified as:

(a) Investments in Equity Instruments;

(b) Investments in Preference Shares;

(c) Investments in Government or trust securities;

(d) Investments in debentures or bonds;

(e) Investments in Mutual Funds;

(f) Investments in partnership firms;

O. Inventories

(i) Inventories shall be classified as:

(a) Raw materials;

(b) Work-in-progress;

(c) Finished goods;

(d) Stock-in-trade (in respect of goods acquired for trading);

(e) Stores and spares;

(f) Loose tools;

(g) Others (specify nature).

R. Short-term loans and advances

(i) Short-term loans and advances shall be classified as:

(a) Loans and advances to related parties (giving details thereof);

(ii) The above shall also be sub-classified as:

(a) Secured, considered good;

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(b) Unsecured, considered good;

(c) Doubtful.

T. Contingent liabilities and commitments (to the extent not provided for)

(i) Contingent liabilities shall be classified as:

(a) Claims against the company not acknowledged as debt;

(b) Guarantees;

(c) Other money for which the company is contingently liable.

(ii) Commitments shall be classified as:

(a) Estimated amount of contracts remaining to be executed on capital account and

not provided for;

(b) Uncalled liability on shares and other investments partly paid;

(c) Other commitments (specify nature).

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