CHAPTER

11
COMPANY ACCOUNTS
UNIT – 1 INTRODUCTION TO COMPANY ACCOUNTS

LEARNING OUTCOMES

After studying this unit, you would be able to:

♦ Understand the reason for the existence and survival of a company.
♦ Learn the nature and types of companies.
♦ Explain the salient features of a company.
♦ Understand the purpose of preparing the financial statements of the
company.

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11.2 ACCOUNTING

UNIT OVERVIEW

Government
Company
Subsidiary Foreign
Company company

Holding Private
Company company

Company
limited Tyes of Public
by Companies Company
Gurantee

Company
One
limited
Person
by
Company
Shares

Unlimite
Small
d
Company
Compnay Listed
Company

Statement
of Profit
and Loss

Preparation Cash Flow

Balance
of Financial Statement
Sheet
Statements

Notes to
Accounts

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1.1 INTRODUCTION
The never-ending human desire to grow and grow further has given rise to the expansion of
business activities, which in turn has necessitated the need to increase the scale of operations
so as to provide goods and services to the ever-increasing needs of the growing population
of consumers. Large amount of money, modern technology, large human contribution etc. is
required for it, which is not possible to arrange under partnership or proprietorship. To
overcome this difficulty, the concept of ‘Company’ or ‘Corporation’ came into existence.
While the invention of steam power ignited the human imagination to build big machines for
the mass production of goods, the need to separate the management from ownership gave
birth to a form of organisation today known as ‘company’.
Company form of organisation is one of the ingenious creations of human mind, which has
enabled the business to carry on its wealth creation activities through optimum utilisation of
resources. In course of time, a company structure has become an important institutional form
for business enterprise, which has carved out a key place for itself in the field of business
operations as well as in the wealth-generating functions of society.

1.2 MEANING OF COMPANY

The word ‘Company’, in everyday usage, implies an assemblage of persons for social purpose,
companionship or fellowship. As a form of organisation, the word ‘company’ implies a group
of people who voluntarily agree to form a company.
The word ‘company’ is derived from the Latin word ‘com’ i.e. with or together and ‘panis’ i.e.
bread. Originally the word referred to an association of persons or merchant men discussing
matters and taking food together. However, in law ‘company’ is termed as company which is
formed and incorporated under the Companies Act, 2013 or an existing company formed and
registered under any of the previous company laws. As per this definition of law, there must
be group of persons who agree to form a company under the law and once so formed; it
becomes a separate legal entity having perpetual succession with a distinct name of its own
and a common seal. Its existence is not affected by the change of members.
Company begs its origin in law. It is an organisation consisting of individuals, called
shareholders by virtue of holding the shares of a company, who are authorised by law to elect
a board of directors and, through it, to act as a separate legal entity as regards its activities.
Generally, the capital of the company consists of transferable shares, and members have
limited liabilities.
To get to the heart of the nature of the company, let us examine the concept of company
propounded under corporate jurisprudence.

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11.4 ACCOUNTING

According to Justice Marshal, “A corporation is an artificial being, invisible, intangible and

existing only in the contemplation of law”.

In the same manner, Lord Justice Hanay has defined a company as “an artificial person created
by law with a perpetual succession and a common seal”.
A common thread running through the various definitions of ‘company’ is that it is an
association of persons created by law as a separate body for a special purpose. At the same
time, definitions have laid down certain characteristics of a corporate organisation, which
make it out as a separate and unique organisation which enables the people to contribute
their wealth to the capital of the company by subscribing to its shares and appointing elected
representatives to carry out the business.

1.3 SALIENT FEATURES OF A COMPANY

Following are the salient features of a company:
1. Incorporated Association: A company comes into existence through the operation of
law. Therefore, incorporation of company under the Companies Act is must. Without
such registration, no company can come into existence. Being created by law, it is
regarded as an artificial legal person.
2. Separate Legal Entity: A company has a separate legal entity and is not affected by
changes in its membership. Therefore, being a separate business entity, a company can
contract, sue and be sued in its incorporated name and capacity.
3. Perpetual Existence: Since company has existence independent of its members, it
continues to be in existence despite the death, insolvency or change of members.
4. Common Seal: Company is not a natural person; therefore, it cannot sign the
documents in the manner as a natural person would do. In order to enable the
company to sign its documents, it is provided with a legal tool called ‘Common Seal’.
The common seal is affixed on all documents by the person authorised to do so who
in turn puts his signature for and on behalf of the company. Companies Act, 2013
required common seal to be affixed on certain documents (such as bill of exchange,
share certificates, etc.) Now, the use of common seal has been made optional. All such
documents which required affixing the common seal may now instead be signed by
two directors or one director and a company secretary of the company. Further, every
company registered in India are required to obtain unique Corporate Identification
Number (CIN) that is assigned by Registrar of Companies.

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5. Limited Liability: The liability of every shareholder of a company is limited to the

amount he has agreed to pay to the company on the shares allotted to him. If such
shares are fully paid-up, he is subject to no further liability.
6. Distinction between Ownership and Management: Since the number of shareholders is
very large and may be distributed at different geographical locations, it becomes
difficult for them to carry on the operational management of the company on a day-
to-day basis. This gives rise to the need of separation of the management and
ownership.

7. Not a citizen: A company is not a citizen in the same sense as a natural person is,
though it is created by the process of law. It has a legal existence but does not enjoy
the citizenship rights and duties as are enjoyed by the natural citizens.
8. Transferability of Shares: The capital is contributed by the shareholders through the
subscription of shares. Such shares are transferable by its members except in case of a
private limited company, which may have certain restrictions on such transferability.
9. Maintenance of Books: A limited company is required by law to keep a prescribed set
of account books and any failure in this regard attracts penalties.
10. Periodic Audit: A company has to get its accounts periodically audited through the
chartered accountants appointed for the purpose by the shareholders on the
recommendation of board of directors.
11. Right of Access to Information: The right of the shareholders of a company to inspect
its books of account, with the exception of books open for inspection under the
Statute, is governed by the Articles of Association. The shareholders have a right to
seek information from the directors by participating in the meetings of the company
and through the periodic reports.

1.4 TYPES OF COMPANIES

1. Government Company
According to Section 2(45) of the Companies Act, 2013, “Government company” means any
company in which not less than fifty-one per cent of the paid-up share capital is held by the
Central Government, or by any State Government or Governments, or partly by the Central
Government and partly by one or more State Governments, and includes a company which is
a subsidiary company of such a Government company.
2. Foreign Company
According to Section 2 (42) of the Companies Act, 2013, “Foreign company” means any
company or body corporate incorporated outside India which –

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11.6 ACCOUNTING

(a) Has a place of business in India whether by itself or through an agent physically or
through electronic mode; and

(b) Conducts any business activity in India in any other manner.

3. Private Company
Section 2(68) of the Companies Act, 2013 defines ‘Private company’ as a company which by
its articles,
i. Restrict the right to transfer its shares;

ii. Except in case of One Person Company limits the number of its members to two
hundred:
Provided that where two or more persons hold one or more shares in a company
jointly, they shall, for the purposes of this sub-clause, be treated as a single member:
Provided further that—
(A) Persons who are in the employment of the company; and
(B) persons who, having been formerly in the employment of the company, were
members of the company while in that employment and have continued to be
members after the employment ceased,
shall not be included in the number of members; and
(iii) Prohibits any invitation to the public to subscribe for any securities of the company.
Shares of a Private Company are not listed on Stock Exchange.
4. Public Company
Section 2(71) of the Companies Act, 2013 defines Public Company as a company which—
(a) is not a private company; and

(b) has a minimum paid-up share capital as may be prescribed:

Provided that a company which is a subsidiary of a company, not being a private company,
shall be deemed to be public company for the purposes of this Act even where such subsidiary
company continues to be a private company in its articles;
A company which is a listed public company if it gets unlisted continues to be a public
company.
No Minimum Paid-up Share Capital: The minimum paid-up share capital requirement of
INR 1,00,000 (in case of a private company) and INR 5,00,000 (in case of a public company)
has been done away with under Companies Act, 2013. Accordingly, no minimum paid-up

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capital requirements will now apply for incorporating private as well as public companies in
India.

5. One Person Company

Section 2 (62) of the Companies Act, 2013 defines “One Person Company” as a company which
has only one person as a member.
6. Small Company
Section 2(85) of the Companies Act, 2013 defines “Small company” means a company, other
than a public company
(i) paid-up share capital of which does not exceed four crores rupees or such higher
amount as may be prescribed which shall not be more than ten crore rupees; and
(ii) turnover of which as per its last profit and loss account for the immediately preceding
financial year does not exceed forty crore rupees or such higher amount as may be
prescribed which shall not be more than hundred crore rupees:
Provided that nothing in this clause should apply to:
(A) a holding company or a subsidiary company
(B) a company registered under section 8
(C) a company or body corporate governed by any special Act
7. Listed Company
As per Section 2 (52) of the Companies Act, 2013,''listed company” means a company which
has any of its securities listed on any recognised stock exchange.
The company, whose shares are not listed on any recognised stock exchange, is called
‘‘Unlisted Company’’.
An unlisted company can be a public company or a private company.
8. Unlimited Company
Section 2 (92) of the Companies Act, 2013 defines ''Unlimited company” means a company
not having any limit on the liability of its members.
9. Company limited by Shares
As per Section 2(22) of the Companies Act, 2013, “Company limited by shares” means a
company having the liability of its members limited by the memorandum to the amount, if
any, unpaid on the shares respectively held by them.
10. Company limited by Guarantee
As per Section 2(21) of the Companies Act, 2013, “company limited by guarantee” means a
company having the liability of its members limited by the memorandum to such amount as

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11.8 ACCOUNTING

the members may respectively undertake to contribute to the assets of the company in the
event of its being wound up.
11. Holding Company
According to Section 2 (46) of the Companies Act, 2103, “Holding company”, in relation to
one or more other companies, means a company of which such companies are subsidiary
companies.
12. Subsidiary Company
Section 2(87) of the Companies Act, 2013 defines “subsidiary company” as a company in which
the holding company:
(i) Controls the composition of the Board of Directors; or
(ii) Exercises or controls more than one-half of the total share capital either at its own or
together
with one or more of its subsidiary companies.
A company shall be deemed to be a subsidiary company of the holding company even if there
is indirect control through the subsidiary company (ies). The control over the composition of
a subsidiary company’s Board of Directors means exercise of some power to appoint or
remove all or a majority of the directors of the subsidiary company.

1.5 MAINTENANCE OF BOOKS OF ACCOUNT

As per Section 128 of the Companies Act, 2013, 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 which give a true and fair view of the state of the affairs of
the company, including that of its branch office or offices, if any, and explain the transactions
effected both at the registered office and its branches and such books shall be kept on accrual
basis and according to the double entry system of accounting:
Provided further that the company may keep such books of account or other relevant papers
in electronic mode in such manner as may be prescribed.

1.6 PREPARATION OF FINANCIAL STATEMENTS

Under Section 129 of the Companies Act, 2013, the financial statements shall give a true and
fair view of the state of affairs of the company or companies, comply with the notified
accounting standards and shall be in the form or forms as may be provided for different class
or classes of companies, as prescribed in Schedule III. The Board of Directors of the company
shall lay financial statements at every annual general meeting of a company.

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Financial Statements as per Section 2(40) of the Companies Act, 2013, inter-alia include -
i. A balance sheet as at the end of the financial year;
ii. 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;
iii. cash flow statement for the financial year;

iv. A statement of changes in equity, if applicable; and

v. (any explanatory not annexed to, or forming part of, any document referred to in sub-
clause (i) to sub-clause (iv):

Provided that the financial statement, with respect to One Person Company, small
company and dormant company, may not include the cash flow statement.
Requisites of Financial Statements
It shall give a true and fair view of the state of affairs of the company as at the end of the
financial year.
Provisions Applicable
(1) Specific Act is Applicable
For instance, any

(a) Insurance company

(b) Banking company or
(c) Any company engaged in generation or supply of electricity* or
(d) Any other class of company for which a Form of balance sheet or Profit and loss
account has been prescribed under the Act governing such class of company.
(2) In case of all other companies:

Balance Sheet as per Form set out in Part I of Schedule III and Statement of Profit and
Loss as per Part II of Schedule III.
Compliance with Accounting Standards
As per Section 129 of the Companies Act, it is mandatory to comply with accounting standards
notified by the Central Government from time to time.
Schedule III of the Companies Act, 2013
As per Section 129 of the Companies Act, 2013, Financial statements shall give a true and fair
view of the state of affairs of the company or companies and comply with the accounting

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11.10 ACCOUNTING

standards notified under Section133 and shall be in the form or forms as may be provided for
different class or classes of companies in Division I of Schedule III under the Act.
PART I – Form of BALANCE SHEET
Name of the Company…………………….
Balance Sheet as at………………………
(` in…………)

Particulars Notes Figures as Figures as

No. at end of at
the current end of the
reporting previous
period reporting
period
EQUITY AND LIABILITIES
1. Shareholders’ funds
a. Share capital (A) xxx xxx
b. Reserves and Surplus (B) xxx xxx
c. Money received against share warrants xxx xxx
2. Share application money pending allotment xxx xxx
3. Non-current liabilities
a. Long-term borrowings (C) xxx xxx
b. Deferred tax liabilities (Net) xxx xxx
c. Other long term liabilities xxx xxx
d. Long-term provisions (D) xxx xxx
4. Current liabilities
a. Short-term borrowings (E) xxx xxx
b. Trade Payables
(A) total outstanding dues of micro xxx xxx
enterprises and small enterprises; and
(B) total outstanding dues of creditors xxx xxx
other than micro enterprises and small
enterprises.]
c. Other current liabilities (F) xxx xxx
d. Short-term provisions xxx xxx
Total xxx xxx

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ASSETS
1. Non-current assets
a. i. Property, Plant and Equipment xxx xxx
ii. Intangible assets (H) xxx xxx
iii. Capital Work-in-progress xxx xxx
iv. Intangible assets under development xxx xxx
b. Non-current investments (I) xxx xxx
c. Deferred tax assets (Net) xxx xxx
d. Long-term loans and advances (J) xxx xxx
e. Other non-current assets xxx xxx
2. Current assets
a. Current investments (K) xxx xxx
b. Inventories (L) xxx xxx
c. Trade receivables xxx xxx
d. Cash and cash equivalents (M) xxx xxx
e. Short-term loans and advances xxx xxx
f. Other current assets xxx xxx
Total xxx xxx

Certain items are to be explained as follows (list not exhaustive):

A. SHARE CAPITAL
For each class of share capital following points is to be kept in mind:
i. The number and amount of shares authorised.
ii. The number of shares which are issued, subscribed and fully paid and which are issued,
subscribed but not fully paid.
iii. The par value per share.
iv. Shares outstanding at the beginning and at the end of the reporting period should be
reconciled.
v. Calls unpaid.
vi. Forfeited shares.

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B. RESERVES AND SURPLUS

Reserves and surplus can be distributed among the following sub-heads:
i. Capital reserves

ii. Capital redemption reserves

iii. Securities Premium
iv. Debenture Redemption reserve

v. Revaluation reserve
vi. Surplus; the balance as per profit and loss statement
vii. Other reserves (specify the nature and purpose)
C. LONG TERM BORROWINGS
Long term borrowings can be classified under the following sub-heads:
i. Bonds/Debentures
ii. Term loans

iii. Deferred payment liabilities

iv. Deposits
v. Long term maturities of finance lease obligations
vi. Loans and advances from related parties
vii. Other loans and advances (specify nature)
D. LONG TERM PROVISIONS
This can be classified as follows:
i. Employee benefits provision like gratuity, provident fund etc.
ii. Other provisions (specify the nature)
E. SHORT TERM BORROWINGS
Short term borrowings can be classified among the following sub-heads:
i. Loans repayable on demand

ii. Loans and advances from related parties

iii. Deposits
iv. Other loans and advances (specify the nature)

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F. OTHER CURRENT LIABILITIES

Some of the other current liabilities can be grouped as under:
i. Interest accrued but not/and due on borrowings

ii. Income received in advance

iii. Unpaid dividends
iv. Application money received for allotment of securities and due for refund and interest
accrued thereon
v. Other current liabilities (specify the nature)
G. PROPERTY, PLANT AND EQUIPMENT
Property, Plant and Equipment can be classified as follows:
i. Land
ii. Buildings
iii. Plant and Equipment

iv. Furniture and Fixtures

v. Vehicles
vi. Office equipment
vii. Others (specify the nature)
A detailed report showing additions, disposals, acquisitions through business combinations
and other adjustments and amount related to depreciation, impairment losses, revaluation
etc. should be provided for each class of asset.
H. INTANGIBLE ASSETS
Intangible assets can be classified as follows:
i. Goodwill
ii. Brands/trademarks
iii. Computer software
iv. Mining rights

v. Publishing titles
vi. Copyrights, patents and other intellectual property rights, services and operating
rights.

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vii. Licence and franchise

viii. Recipes, models, designs, formulae and prototypes
ix. Others (specify the nature)
A detailed report showing additions, disposals, acquisitions through business combinations
and other adjustments and amount related to depreciation, impairment losses, revaluation
etc. should be provided for each class of asset.
I. NON-CURRENT INVESTMENTS
Investments can be classified as under:
i. Investments in property

ii. Investments in equity instruments

iii. Investments in preference shares
iv. Investments in governments or trust securities
v. Investments in debentures or bonds
vi. Investments in mutual funds
vii. Investments in partnership firms
viii. Other non-current investments (specify the nature)
J. LONG TERM LOANS AND ADVANCES
It can be classified under the following sub-groups:
i. Capital advances
ii. Security deposits
iii. Loans and advances to related parties
iv. Other loans and advances (specify nature)

The above shall also be sub-classified as follows:

i. Secured, considered goods
ii. Unsecured, considered goods
iii. Doubtful

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K. CURRENT INVESTMENTS
It can be classified as follows:
i. Investments in equity instruments

ii. Investments in preference shares

iii. Investments in government or trust securities
iv. Investments in bonds or debentures

v. Investments in mutual funds

vi. Investments in partnership firms
vii. Other investments (specify the nature)
L. INVENTORIES
Inventories can be classified as:
i. Raw materials
ii. Work-in-progress
iii. Stores and spares
iv. Finished goods
v. Loose tools
vi. Stock in trade
vii. Goods in transit
viii. Others (specify the nature)
M. CASH AND CASH EQUIVALENTS
The following head can be classified as follows:
i. Balances with banks
ii. Cheques, drafts in hand
iii. Cash in hand
iv. Others (specify the nature)

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PART II – Form of STATEMENT OF PROFIT AND LOSS

Name of the Company…………………….
Profit and Loss Statement for the year ended ……………………… (` in…………)

Particulars Note Figures for Figures for

No. the current the previous
reporting reporting
period period
I. Revenue from operations xxx xxx
II. Other income xxx xxx
III. Total Revenue (I + II) xxx xxx
IV. Expenses: xxx xxx
Cost of materials consumed xxx xxx
Purchases of Stock-in-Trade xxx xxx
Changes in inventories of finished goods, xxx xxx
Work-in-Progress and Stock-in-Trade
Employee benefits expense xxx xxx
Finance costs xxx xxx
Depreciation and amortization expense xxx xxx
Other expenses xxx xxx
Total expenses xxx xxx
V. Profit before exceptional and xxx xxx
extraordinary items and tax (III-IV)
VI. Exceptional items xxx xxx
VII. Profit before extraordinary items and tax xxx xxx
(V-VI)
VIII. Extraordinary Items xxx xxx
IX. Profit before tax (VII-VIII) xxx xxx
X. Tax expense:
(1) Current tax xxx xxx
(2) Deferred tax xxx xxx xxx xxx
XI. Profit (Loss) for the period from xxx xxx
continuing operations (VII-VIII)
XII. Profit/(Loss) from discontinuing xxx xxx
operations
XIII. Tax expense of discontinuing operations xxx xxx

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XIV. Profit/(Loss) from discontinuing xxx xxx

operations (after tax) (XII-XIII)
XV. Profit (Loss) for the period (XI + XIV) xxx xxx
XVI. Earnings per equity share:
(1) Basic xxx xxx
(2) Diluted xxx xxx

SUMMARY
1. ‘Company’ is termed as an entity which is formed and incorporated under the
Companies Act, 2013 or an existing company formed and registered under any of the
previous company laws.
2. Salient features of a company include: Incorporated Association; Separate Legal Entity;
Perpetual Existence; Common Seal; Limited Liability; Distinction between Ownership
and Management; Not a citizen; Transferability of Shares; Maintenance of Books;
Periodic Audit; Right of Access to Information.

3. Types of companies: Government Company: Foreign Company; Private Company;

Public Company; One Person Company; Small Company; Listed Company; Unlimited
Company; Company limited by Shares; Company limited by Guarantee; Holding
Company; Subsidiary Company.
4. The financial statements shall give a true and fair view of the state of affairs of the
company or companies, comply with the notified accounting standards and shall be in
the form or forms as may be provided for different class or classes of companies, as
prescribed in Schedule III to the Companies Act, 2013. Financial Statements as per
Section 2(40) of the Companies Act, 2013, include balance sheet as at the end of the
financial year; 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; statement of changes in equity, if applicable; and
any explanatory note annexed to.

TEST YOUR KNOWLEDGE

True and False
1. Every public company is a listed company.
2. Shares of a private company are not listed on stock exchange.
3. It is not mandatory to incorporate a company under the companies act.

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4. Company is an artificial, legal person created by law.

5. Death, insolvency or change of members affects the existence of a company.
6. If the shares are fully paid-up by the shareholder, he is subject to no further liability.
7. Public limited company has restrictions on transferability of shares.
8. Financial statements of company show the financial position of the business.
9. Schedule I gives proforma of Balance Sheet.
10. Schedule III prescribes the format of Directors’ Report
11. Financial statements need to be true and correct as per Companies Act.

Multiple Choice Questions

1. Which of the following statement is not a feature of a Company?
(a) Separate legal entity
(b) Perpetual Existence
(c) Members have unlimited liability
2. In a Government Company, the holding of the Central Government in paid-up capital
should not be less than
(a) 25%
(b) 50 %
(c) 51%
3. Which of the following statement is true in case of a Foreign Company?
(a) A Company incorporated in India and has place of business outside India.
(b) A Company incorporated outside India and has a place of business in India.
(c) A Company incorporated in India and has a place of business in India.
4. Which of the following statements is not a feature of a private company?
(a) Restricts the rights of members to transfer its shares.
(b) Does not restrict on the number of its members to any limit.

(c) Does not involve participation of public in general.

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5. Under Schedule III of the Companies Act, assets and liabilities are to be disclosed based
on:

(a) Current/ non-current.

(b) Financial /non-financial.

(c) Owned /not-owned.

6. Schedule III of the Companies Act prescribes the format and content of

(a) Balance sheet and statement of profit and loss

(b) Auditors’ report.

(c) Directors’ report.

7. A company is required to maintain its books of accounts at

(a) its registered office.

(b) its largest branch office.

(c) Managing Director’s residence.

8. Cash flow statements are not required for

(a) Private company.

(b) One person company.

(c) Public company.

9. The presentation and disclosure requirements of a company are prescribed by

(a) Schedule III.

(b) Schedule II.

(c) Schedule I.

10. Following is an example of current assets

(a) Inventories.

(b) Property, Plant & Equipment.

(c) Intangible Assets.

11. Earnings per share (EPS) is to be disclosed in which of the following section of the
financial statements

(a) Balance Sheet.

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(b) Statement of Profit and Loss.

(c) Cash Flow Statements.

12. Following is NOT an example of a company under Companies Act, 2013

(a) Small company.

(b) Private company.

(c) Large company.

Theory Questions
1. Explain salient features of a company in brief.
2. Write short note on:
(i) Foreign company.
(ii) Small company.
(iii) Company limited by guarantee.

ANSWER/HINTS
True and False
1. False: Listed companies are those which are listed on the stock exchange. Shares of
listed companies are open to general public. Every listed company is a public company
but every public company is not a listed company.
2. True: Only the shares of public company are listed on stock exchange. Every listed
company is a public company.

3. False: It is mandatory to incorporate a company under the Companies Act. Without

such incorporation, a company cannot come into existence.
4. True: Company comes into existence through the operation of law. It is a separate
entity distinct from it’s members.
5. False: Company is a separate legal entity created by law. Death, insolvency or change
of member does not affect it’s existence.

6. True: Liability of shareholders is limited to the extent of the unpaid share capital. So,
if shares are fully paid-up, he is subject to no further liability.
7. False: Shares of public company are freely transferable. Transferability of shares is
restricted in a private limited company.

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8. True: Financial statements give a true & fair view of the state of affairs of the company.
Financial statements include profit and loss account, balance sheet, etc.

9. False: Schedule III Part I explains proforma of Balance Sheet.

10. False: Schedule III Part I explains proforma of Balance Sheet and Profit and Loss.
11. False: As per Section 128, every company shall prepare financial statement for every
financial year which give a true and fair view of the state of the affairs of the company.

Multiple Choice Questions

1. (c) 2. (c) 3. (b) 4. (b) 5. (a) 6. (a)

7. (a) 8. (b) 9. (a) 10. (a) 11. (b) 12. (c)

Theoretical Question
1. Refer para 1.3 of this unit for salient features of a company.
2. (i) Foreign Company
According to Section 2 (42) of the Companies Act, 2103, “Foreign company”
means any company or body corporate incorporated outside India which –
(a) Has a place of business in India whether by itself or through an agent
physically or through electronic mode; and
(b) Conducts any business activity in India in any other manner.
(ii) Small Company
Section 2(85) of the Companies Act, 2013 defines “Small company” means a
company, other than a public company.
(i) paid-up share capital of which does not exceed four crores rupees or
such higher amount as may be prescribed which shall not be more than
ten crore rupees; or
(ii) turnover of which as per its last profit and loss account for the
immediately preceding financial year does not exceed forty crores
rupees or such higher amount as may be prescribed which shall not be
more than hundred crore rupees.
Provided that nothing in this clause should apply to:

(A) a holding company or a subsidiary company

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 1.22
11.22 ACCOUNTING

(B) a company registered under section 8

(C) a company or body corporate governed by any special Act
(iii) Company limited by Guarantee
As per Section 2(21) of the Companies Act, 2013, “company limited by
guarantee” means a company having the liability of its members limited by the
memorandum to such amount as the members may respectively undertake to
contribute to the assets of the company in the event of its being wound up.

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