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karnataka class 12 commerce Accountancy Types of financial statements

karnataka class 12 commerce Accountancy Types of financial statements

karnataka class 12 commerce Accountancy Types of financial statements

Types of Financial Statements The financial statements generally include two statements: balance sheet and statement of profit and loss which are required for external reporting and also for internal needs of the management like planning, decision-making and control. Apart from these, there is also a need to know about movements of funds and changes in the financial position of the company. For this purpose, a statement of changes in financial position of the company or a cash flow statement is prepared.

karnataka class 12 commerce Accountancy Types of financial statements

1. Form and Content of Balance Sheet : Balance sheet of a company is prepared and presented in the form prescribed in (Revised) Schedule VI of the Companies Act, 1956. The form prescribed is vertical and is given in Exhibit 3.1.

Every company registered under the Act shall prepare its balance sheet, statement of profit and loss and notes to account thereto in accordance with the manner prescribed in the revised Schedule VI to the Companies Act, 1956 to harmonise the disclosure requirement with the accounting standards and to converge with new reforms. With regard to this, the Ministry of Corporate Affairs (MCA) has prescribed a (Revised) Schedule VI to the Companies Act, 1956 (vide Notification dated 28.02.2011). It is applied to the financial statements prepared for all financial periods beginning on or after April 01, 2011 by the Indian Companies. The revised Schedule VI has introduced many disclosure requirements. It has also done away with several statutory disclosure requirements.

karnataka class 12 commerce Accountancy Types of financial statements

Important Features of Revised Schedule VI

1. It applies to all Indian companies preparing financial statement commencing on or after April 01, 2011.

2. It does not apply to (i) Insurance or Banking Company, (ii) Company for which a form of balance sheet or income statement is specified under any other Act.

3. Accounting standards shall prevail over Schedule VI of the Companies Act, 1956.

4. Disclosure on the face of the financial statements or in the notes are essential and mandatory.

5. Revised Schedule VI has eliminated the concept of ‘Schedule’.

6. Terms in the revised Schedule VI will carry the meaning as defined by the applicable accounting standards.

7. Balance to be maintained between excessive details that may not assist users of financial statements and not providing important information.

8. Current and non-current bifurcation of assets and liabilities is applicable.

9. Rounding off requirements is mandatory (refer box 1).

10. Vertical format for presentation of financial statement is prescribed (refer Exhibit 3.1).

11. Debit balance in the statement of profit and loss to be disclosed as negative figure under the head “Surplus”.

12. Mandatory disclosure for share application money pending allotment.

13. ‘Sundry Debtors’ and ‘Sundry Creditors’ replaced by terms ‘Trade Receivables’ and ‘Trade Payables’

karnataka class 12 commerce Accountancy Types of financial statements

Shareholders fund: Implication of Revised Schedule VI

In (revised) Schedule VI, the shareholders’ funds are sub-classified on the face of the balance sheet.

a) Share Capital

b) Reserves and Surplus

c) Money received against Share Warrants

karnataka class 12 commerce Accountancy Types of financial statements

Share Capital

Disclosures relating to share capital are to be given in notes to accounts of (revised) Schedule VI. The following additions/modifications are significant:

a) For each class of shares, recognition of the number of shares outstanding at the beginning and at the end of the reporting period is required.

b) The rights, preferences and restrictions attached to each class of shares including restrictions on the distribution of dividends and repayment of capital.

c) In order to bring clarity regarding the identity of ultimate owners of the company:

  1. Disclosure of shares in respect of each class in the company held by its holding company or its ultimate holding company including shares held by subsidiaries or associates of holding company or the ultimate holding company in aggregate.
  2. Disclosure of shares in the company held by each shareholder holding more than 5% shares specifying the number of shares held.
  3. Disclosure of the following for the period of 5 years immediately preceding the date of the balance sheet:
  • Aggregate number and class of shares allotted as fully paid up pursuant to contracts without payment being received in cash.
  • Aggregate number and class of shares allotted as fully paid up by way of bonus shares.
  • Aggregate number and class of shares bought back.

This may be noted that as per (revised) Schedule VI, the information of shareholders funds are presented on the face of financial statements limited only to broad and significant items. Details are given in Notes to Accounts. In (revised) Schedule VI, there is no provision of Schedule 1, 2 or 3. All details are to be given mandatorily in Notes to Accounts by note no.1, 2 or 3.

d) For each class of share capital:

i) The number and amount of share authorized.

ii) The number of shares issued, subscribed, fully paid and subscribed but not fully paid.

iii) Par value per share.

iv) Reconciliation of the number of shares outstanding at the beginning and end of the accounting period.

v) Rights, preferences and restrictions attaching each class of shares including restrictions on the distribution of dividends and repayment of capital.

vi) Aggregate number of shares with respect to each class in the company held by its holding company, its ultimate holding company including shares held by or by subsidiaries or associates of the holding company or the ultimate holding company.

vii) Shares reserved for issue under options and contracts/ commitments for the sale of shares/disinvestment, including terms and amount.

viii) For a period of 5 years immediately proceeding the date at which balance sheet in prepared for:

  • Shares reserved under contracts/commitments.
  • Number and class of shares bought back.
  • Number and class of shares allotted for consideration other than cash and bonus shares.

ix) Terms of any securities convertible into equity/preference shares issued along with earliest date of conversion in descending order, starting from the farthest such date.

x) Calls unpaid (aggregate).

xi) Forfeited shares (amout originally paid up).

karnataka class 12 commerce Accountancy Types of financial statements

 Reserve and Surplus

As per (revised) Schedule VI, Reserves and Surplus are required to be classified as:

i) Capital Reserve ii) Capital Redemption Reserve

iii) Securities Premium Reserve

iv) Debenture Redemption Reserve

v) Revaluation Reserve

vi) Share Options Outstanding Account

vii) Other Reserves (Specifying nature and purpose)

viii) Surplus: Balance in statement of profit and loss; disclosing allocations and Appropriation such as dividend, bonus shares, transfer to/from reserve, etc.

Significant additions/modifications regarding disclosure of reserve and surplus are as follows:

a) A reserve specifically represented by earmarked investments shall be termed as “Fund”.

b) ‘Debit’ balance of statement of profit and loss shall be shown as a negative figure under ‘Surplus’ head.

c) The balance of “Reserve and Surplus” after adjusting negative balance of Surplus, if any, shall be shown under “Reserve and Surplus” read even if the resulting figure is ‘negative’.

d) Share options outstanding account has been recognised as a separate item under ‘Reserve and Surplus’. ICAI’s Guidance Note on Accounting for Employee share based payments requires a credit balance in the ‘Stock option outstanding Account’ to be disclosed in balance sheet under separate heading’ between share capital and reserves and surplus as a part of shareholders fund.

karnataka class 12 commerce Accountancy Types of financial statements

Share application money

(Revised) Schedule VI requires share application money not exceeding the issued capital and to the extent non-refundable shall be classified as non-current. It will be shown on this face of balance sheet as share application money pending allotment.

Borrowings Total borrowings are categorised into long-term borrowings, short-term borrowings and current maturities to long-term debt.

(i) Loans which are repayable in more than twelve months/operating cycle are classified as long-term borrowings on the face of balance sheet.

(ii) Loans repayable on demand or whose original tenure is not more than twelve months/operating cycle are classified as short-term borrowings on the face of balance sheet.

(iii) Current maturities to long-term loan include amount repayable within twelve months/operating cycle under other current liabilities with Note to Account.

Deferred tax assets/liabilities are always non-current. This is in accordance to IAS-I.

Trade payables

Sundry creditors have been replaced with the term Trade payables and are classified as current and non-current. Trade payables to be settled beyond 12 months from the date of balance sheet or beyond the operating cycle are classified under “other long-term liabilities” with Note to Account. For example, purchase of goods and services in normal course of business. The balance of trade payables are classified as current liabilities on the face of balance sheet.

Provisions The amount of provision settled within 12 months from balance sheet date or within operating cycle period from date of its recognition is classified as short term provisions and shown under current liabilities on the face of balance sheet. Others are depicted as long-term provisions under non-current liabilities on the face of balance sheet.

Fixed assets There is no change in the treatment of fixed assets. Both tangible and intangible assets are non-current. This may also be noted if the useful life of the asset is less than 12 months. It will still fall under non-current.

Investments Investments are also classified into current and non-current categories. Investments expected to realise within twelve months are considered as current investments under current assets. Others are classified as non-current investments under non-current assets. Both are however shown on the face of the balance sheet.

Inventories All inventories are always treated as current.

Trade receivables Trade receivables realised beyond twelve months from reporting date/operating cycle starting from the date of their recognition are classified as “Other noncurrent assets” under the head non-current assets with Note to Accounts. For example, sale of goods or services rendered in normal course of business. Others are classified as current assets and shown on the face of the balance sheet.

Cash and cash equivalent It is always current however, amounts which qualify as cash and cash equivalents as per IAS-3 is shown here. The old Schedule VI contained cash and bank balances on the face of balance sheet as against cash and cash equivalents. Now that supremacy is accorded to AS over Schedule VI, cash and cash equivalents are to the disclosed in accordance to IAS-3.

karnataka class 12 commerce Accountancy Types of financial statements

2.Form and content of Statement of Profit and Loss Statement of Profit and Loss represents revenue, expenses and financial result of a business entity. A form for preparing Statement of Profit and Loss under (Revised) Schedule VI, Part-II of the Companies Act 1956, is given in Exhibit 3.2.

The items of statement of profit and loss are discussed as follows:

1. Revenue from operations This includes:

(i) Sale of products

(ii) Sale of services

(iii) Other operating revenues In respect to a finance company, revenue from operational shall include revenue from interest, dividend and income from other financial services. It may be noted that under each of the above heads shall be disclosed separately by way of notes to accounts to the extent applicable.

2. Other income (Revised) Schedule VI requires the following classification:

(i) Interest income (in case of a company other than a finance company),

(ii) Dividend income,

(iii) Net gain/loss on sale of investments,

(iv) Other non-operating income (net of expenses directly attributable to such income).

karnataka class 12 commerce Accountancy Types of financial statements

Must read:

karnataka class 12 commerce Accountancy CH6 ACCOUNTING FOR SHARE CAPITAL AND DEBENTURES

karnataka class 12 commerce Accountancy CH3 PARTNERSHIP ACCOUNTS ADMISSION OF A PARTNER

karnataka class 12 commerce Accountancy Ratios in connection with admission of a partner

karnataka class 12 commerce Accountancy Preparation of Revaluation account

Karnataka class 12 commerce Accountancy Adjustments in connection with admission of a partner

Karnataka class 12 commerce Accountancy CH4 PARTNERSHIP ACCOUNTS RETIREMENT AND DEATH OF A partner

Karnataka class 12 commerce Accountancy Ratios in connection with retirement of a partner

karnataka class 12 commerce Accountancy Types of financial statements

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