INTRODUCTION:-

• There is no statutory obligation upon sole proprietorship or

partnership firm to prepare final accounts, but companies have a
statutory obligation to prepare final accounts required by section
210 of the companies act. The general principles of preparing the
final accounts of joint stock companies are same in case of the sole
proprietor or partnership firms. It may be remembered that the
provisions f the companies act , 1956 relating to forms and contents
of the final accounts does not apply to insurance, banking and
electricity companies which are governed by special acts relating to
such companies.
 LEGAL POSITION REGARDING FINAL
ACCOUNTS OF COMPANIES

Section 210 to 220 of the companies act, 1956 deal with the legal
position relating to the final accounts of joint stock companies.
• Section 210: It deals with the preparation and presentation of the final
accounts of a joint stock company.
• Section 211: It deals with form and contents of the balance sheet and
profit and loss account.
• Section 212: It deals with the disclosure of certain particulars in the
balance sheet of a holding company in respect of its subsidiaries.
Section 213: it makes provision for extension of the
financial year of the holding company and subsidiary
company.

Section 214: it makes provisions regarding rights of

holding company’s representatives and members to
inspect books of accounts kept by any of its
subsidiaries.

Section 215: as per this section, the balance sheet

and profit and loss account of the company shall be
authenticated on behalf of board of directors by its
manager or secretary.

Section 216: the profit and loss shall be treated as

an annexure to the balance sheet and the auditor’s
report as an enclosure hereto.
section 217: the report of the board and directors shall be
attached to every balance sheet laid before the shareholders in
general meeting.

section 218: it provides for penalty for improper issue,

circulation or publication of balance sheet or profit and loss
account.

section 219: it deals with right of the member to copies of

balance sheet and profit and loss account.

section 220: three copies of the balance sheet and profit and
loss account shall be filed with the registrar within 30 days after
annual general meeting.
STATUTORY BOOKS
Following statutory books are required to be maintained by a
company:
1. Register of charges (section 143)
2. Register of members (section 150)
3. Index of members (section 151)
4. Register of debenture holders with index (section 152)
5. Copies of annual returns (section 163)
6. Minute books – to record the proceeding of the general
meetings and of the meetings of the board and its committees
(section 193)
7. Register of contracts with companies (section 301)
8. Register of directors, managing director, manager and secretary
(section 303)
9. Register of directors shareholdings (section 307)
10.Register of investments in shares and debentures of bodies
corporate (section 372)
11.Register of loans made to other companies under the same
management (section 370)
12. Director’s attendance book (regulation 71 of Table A)
 Form of balance sheet

Note No. Figures as at Figures as at

Particulars the end the end of
current the previous
reporting
reporting period
period

EQUITY AND LIABILITIES

(1)Shareholders funds
(a)Share capital
(b)Reserves and surplus
(c)Money received against share
warrants

(2)Share application money pending

allotment
(3)Non-current liabilities
(a)Long-term borrowings
(b)Deferred tax liabilities(Net)
(c)Other Long term liabilities
(d)Long-term provisions

(4)Current liabilities
(a)Short-term borrowings
(b)Trade payables
(c)Other current liabilities
(d)Short-term provisions

TOTAL
ll.ASSETS
Non –current assets
(1)(a) Fixed assets
(i) Tangible assets
(ii) Intangible assets
(iii) Capital work in
progress
(iv)Intangible assets under
development
(b) Non-current investments
(c) Deferred tax assets (net)
(d) Long-term loans and
advance
(e) Other non-current assets
(2) Current assets
(a) Current investments
(b)Inventories
(c)Trade receivables
(d)Cash and cash
equivalents
(e)Short-term loans and
advances
(f)Other current assets

TOTAL
GENERAL INSTRUCTIONS FOR
PREPARATION OF BALANCE SHEET
1.An asset shall be classified as current when it satisfies any of the
following criteria:
(a)It is expected to be realized in,or is intended for sale or consumption in
the company normal operating cycle.
(b)It is held primarily for the purpose of being traded
(c)It is expected to be realized within twelve months after the reporting ;
(d)It is cash and cash equivalent.
2.An operating cycle is the time between the acquisition of assets for
processing and their realization in cash or cash equivalents.
3.A liability shall be classified as current when it satisfies any of the
fallowing criteria:
(a)It is expected to be settled in the company
(b)It is held primarily for the purpose of being traded.
(c)It is due to be settled within twelve after the reporting report.
4.A receivable shall be classified as a ‘trade receivable’ of it is in respect of
the amount due
5.A payable shall be classified as a ‘trade payable’ if it is in of the amount
due.
6.A company shall disclose the following notes to accounts:
A.SHARE CAPITAL
(a)The number and amount of shares authorised
(b)The number of shares ussued,subscribed and fully paid and subscribed
but not fully paid.
(c)Par value per shre
(d)A reconciliation of the number of shares outstanding at the beginning
and at the end of the reporting period.
(e) Shares in the company held by each shareholder holding
more than 5% shares specfiying the number of shares held.
(f)Calls unpaid and forfeited shares.
B.RESERVES AND SURPLUS
(i)Reserves and surplus shall be classified as
(a)Capital reserve
(b)Capital redemption reserve
(c)Securities premium reserve
(d)Debenture redemption reserve
(e)Revaluation Reserve
(ii)Debit balance of statement of profit and loss shall be
shown as a negative figure under the head ‘Surplus’.
Similarly the balance of reserve and surplus after adjusting
negative balance of surplus shall shown under the head
‘Reserve and surplus’.
C.Long –Term Borrowings
(i)Long term borrowings shall be classified as:
(a)Bonds/debentures
(b)Term loan from bank
(c)Deferred payment liabilities
(d)Deposits etc
(ii)Borrowings shall further be sub classified as secured and unsecured.
(iii)Where loans have been guaranteed by directors, the aggregate amount of
such ;loans under each head shall be disclosed.
(iv)Particulars of any redeemed bonds/debentures which the company has
power to reissue shall be disclosed.
(v)Terms of repayment of term loans and other loans shall be stated.
D. Other long term liabilities
(a)Trade payable
(b)Others
E . Long –term provisions
(a)Provision for employee benefits
(b)Others
F . Short-term borrowings
(i)Short-term borrowings shall be classified as;
(a)Loans repayable on demand from banks
(b)Loans and advances from related parties
(c)Deposits
(d)Other loans and advances
(ii)Borrowings shall further classified as secured and unsecured.
(iii)Period and amount of default as on the balance sheet date in
repayment of loans and interest shall be specified separately in each
case.
G. Other current liabilities
(a)Current maturities of long-term debt
(b)Current ,maturities of finance lease obligations
(c)Interest accrued but not due on borrowings
(d)Interest accrued but due on borrowing
(e)Unpaid dividends
(h)Unpaid matured deposits and interest accured thereon.
H. Short-term provisions
(a)Provision for employee benefits.
(b)Others
I . Tangible assets
(I)Classification shall be given as :
(a)Land
(b)Buildings
(c)Plant and equipment
(d)Furniture and Fixtures
(ii)Assets under lease shall be separately specified under each class of
asset
(iii)A reconciliation and end of the reporting period showing additions,
disposals, acquisitions through business combinations.
(iv)Where sums have been written off on a reduction of capital or
revaluation of assets or where sums have been added on revaluation of
assets ,every balance sheet subsequent to date of such written-off.
J.Intangible assets
(a)Goodwill
(b)Brands/Trademarks
(c)Computer software
(d)Mining rights
(ii)A reconciliation of the gross and net carrying amounts of each
class of assets at the beginning and at the end of the reporting
period showing additions ,disposals,acquisitiuons through
business combinations and other adjustments and the related
amortization and impairent losses/reveeeersals shall be
disclosed separately.
K. Non-current investments
(a)Investment property
(b)Investment in Equity Instruments
(c)Investment in preference shares
(d)Investment in Government
(e)Investment in mutual funds
(ii) Investments carried at other than at cost should be separately
stated.
(iii)Following shall also be disclosed:
(a)Aggregate amount of quoted investments and market value
(b)Aggregate amount of unquoted investments
(c)Aggregate provision for diminution in value investments.
L.Long-term loans and advances
(i)Long- term loans and advances shall be classified as:
(a)Capital Advances
(b)Security Deposits
(c)Loans and advances
(ii)The above shall also be separately sub-classified as:
(a)Secured, considered goods
(b) Unsecured, considered goods
(c) doubtful.
(iii) Allowance for bad and doubtful loans and advances shall be disclosed
under the relevant heads separtely.
M. Other non-current assets.
(i)long- term trade receivable (inculding trade receivable on deferred
credit terms)
(ii) others (specify nature)
(iii) long –term trade receivable , shall be sub-classified as:
(i) (a) secured, considered goods
(b) unsecured, considered goods
(c) doubtful
(ii) allowance for bad and doubtful debts shall be disclosed under the
relevant heads separtely.
N. Current investments
(i)Current investment 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 firm;
(g) other investments (specify nature);
(ii) Following shall be disclosed;
(a) the basis of valuation of individual investments;
(b) aggregate amount of quoted investments and market value
thereof;
(c) Aggregate amount of unquoted investments;
(d) aggregate provision made for diminution in value of investments;
O. Inventories
(i)Inventories shall be classified as;
(a) raw material;
(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);
(ii) goods-in transit shall be disclosed under the relevant sub-head of
inventories
(iii) Mode of valuation shall be stated.
P. Trade receivable
(i)Aggregate amount of trade receivable outstanding for a
period exceeding six months from the date they are due
for payments should be separately stated.
(ii) trade receivable shall be sub-classified as;
(a)Secured , considered goods;
(b) unsecured, considered goods;
(c) doubtful;
(iii) Allowance for bad and doubtful debts shall be disclosed
under the relevant heads separately;
Q. Cash and cash equivalents
(i)Cash and cash equivalents shall be classified:
R. Short-term loans and advances
(i) Short –term loans and advances shall be classified as:
(a)Loans and advances to related parties
(b)Others
(ii)The above shall also be sub-classified as:
(a)Secured, considered good;
(b)Unsecured
(c)Doubtful
(iii)Allowance for bad and doubtful loans and advances shall be disclosed
under the relevant heads separately.
S. Other current assets
This is an all-inclusive heading, incorporates current assets
that do not fit into any other asset categories.
T. Contingent liabilities
(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
U. The amount of dividends proposed to be distributed to equity
and preference shareholders for the period and the related
amount per share shall be disclosed separately.
V. Where in respect of an issue of securities made for a specific purpose,
the whole or part of the amount has not been used for the specific
purpose at the balance sheet date, there shall be indicated by way of
note how much unutilized amounts have been used or invested.
W. If, in the opinion of the board any of the assets other than fixed assets
and non-current investments do not have a value on realization in the
ordinary course of business at least equal to the amount at which they
are stated.
 FORM OF STATEMENT OF PROFIT
AND LOSS
Note Figures for Figures for
Particulars No. the current the previous
reporting reporting
period period

l. Revenue from operations xxx xxx

ll Other income xxx xxx
lll Total Revenue (I +II ) xxx xxx
lV
Expenses:
xxx xxx
Cost of materials consumed xxx xxx
Purchases of stock in trade xxx xxx
Changes in inventories of finished
goods work in progress and stock in
trade
Employee benefit expense
Finance costs
 Depreciation and amortization expense
Other expenses
Total expenses

V Profit before exceptional and extraordinary XXX XXX

items and tax (lll –IV)
XXX XXX
Vl Exceptional items

Vll Profit before extraordinary items and tax XXX XXX

(V- Vl)

Vlll Extraordinary items XXX XXX

lX Profit before tax (Vll –Vlll) XXX XXX

X Tax expense:
(1)Current tax xxx xxx
(2)Deferred tax xxx xxx
Xl Profit (Loss) for the period from xxx xxx
continuing operations (Vl-Vll)
Profit/(loss) from discontinuing
Xll operations xxx xxx
Tax expense of discontinuing
Xlll operations xxx xxx
Profit/(loss) from Discontinuing
XlV operations (after tax) (Xll-Xll) xxx xxx
Profit(loss) for the period (Xl +XlV)
Earning per equity share:
XV (1)Basic xxx xxx
(2) Diluted
XVl
xxx xxx
xxx xxx
 General Instructions for Preparation
of profit and loss
1.The provisions of this part shall apply to the income and
expenditure account referred to in sub-section (2) of section 210
of the Act, in like manner as they apply to a statement of profit
and loss.
2. (A) In respect of a company other than a finance company
revenue from operations shall disclose separately in the notes
revenue from
(a) sale of products
(b) sale of services
(c) other operating revenues
Less:
(d) Excise duty
 General Instructions for Preparation
of profit and loss
1.The provisions of this part shall apply to the income and
expenditure account referred to in sub-section (2) of section 210
of the Act, in like manner as they apply to a statement of profit
and loss.
2. (A) In respect of a company other than a finance company
revenue from operations shall disclose separately in the notes
revenue from
(a) sale of products
(b) sale of services
(c) other operating revenues
Less:
(d) Excise duty
3.FINANCE COSTS
Finance costs shall classified as:
(a)Interest expense;
(b)Other borrowing costs;
(c)Applicable net gain/loss
4.Other income
Other income shall be classified as:
(a)Interest Income
(b)Dividend Income
(c)Net gain/loss on sale of investments
(d)Other non –operating income
5.Additional Information
A company shall disclose by way of notes additional information
regarding aggregate expenditure and income on the following
items:
(a) Employee benefit expense such as salaries and wages ,expense
on employee stock option scheme etc.
(b)Depreciation and amortization expense
(c)Interest Income
(d)Dividend Income
(e)Net gain or loss on foreign currency transaction and translation
(f)Details of items of exceptional and extraordinary nature
(g)Prior period items.
5.Additional Information
A company shall disclose by way of notes additional information
regarding aggregate expenditure and income on the following
items:
(a) Employee benefit expense such as salaries and wages ,expense
on employee stock option scheme etc.
(b)Depreciation and amortization expense
(c)Interest Income
(d)Dividend Income
(e)Net gain or loss on foreign currency transaction and translation
(f)Details of items of exceptional and extraordinary nature
(g)Prior period items.
(iv) (a) The aggregate if material 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) (a)The aggregate if material of the amounts set aside to
provisions made for meeting specific liabilities ,contingencies or
commitments.
(b) The aggregate if material of the amounts withdrawn from
such provisions as no longer required.
(vi)Expenditure incurred on each of the following items,
separately for each item:
(a)Consumption of stores and spares parts.
(b)Power and fuel
(c)Rent
(d)Repairs to buildings and machinery
(e)Insurance etc.
(vii)(a)Dividends from subsidiary companies.
(b)Provisions for losses of
subsidiary companies.
(viii)The profit and loss account shall also contain by way of a note
the following information namely,
(a)Value of imports calculated on C.I.F. 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 consulation
fees,interest,and other matters.
(c)Earnings in foreign exchange classified under the following
heads,namely;
I. Export of goods calculated on F.O.B.basis;
II.Royalty,Know-how,professional and consulation fees.
III.Interest and dividend
Following is the trial balance of lakshmi co, ltd as on 31st ,march,2012

Rs. Rs.
1.stock,31st march,2011 75000
2. sales
3. purchases 350000
4. wages 245000
5. discount 50000
6. furniture and fitting 5000
7. salaries 17000
8. rent
9. sundry expenses 7500
10. surplus account 31, 4950
march,2011 7050
11. dividend paid 15030
12. share capital
13. debtors and creditors 9000
100000
37500 17500
14.Plant and machinery 29000
15.Cash and bank
16.Reserve 16200
17. Patents and trade 15500
mark 4830

503000 503000
Prepare statement of profit and loss for the year ended 31st
march,2012 and balance sheet as that date. Take into consideration
the following adjustments:
(i)Stock on 31st march,2012 was valued at rs, 82000
(ii) depreciation on fixed assets @10%
(iii) make a provision for income-tax @50%
(iv) ignore corporate dividend tax.
 lakshmi co. ltd
statement of profit and loss
for the year ending 31march,2012

Note Year ending 31-3- Year ending 31-3-

No. 2012 Rs. in ‘000 2011 Rs.in ‘000

350.000
(i)Revenue from operation (sales) 5.000
(ii) other income(discount) 355.000
(iii) total revenue(I+II)
(iv) expenses;
Purchases
Change in inventories of finished goods
closing stock 82000
operating stock 75000
7000
238.000
Employee benefits expenses
Finance cost 1 57.500
Depreciation and amortization expenses Nil
Other expenses
Total expenses 2 5.083
V. Profit before tax(III-IV)
VI. Tax Expenses (provision for tax) 3 12.000
VII. Profit after tax(V-VII) 312.583

42.417
21.209

21.208
ACCOMPANYING NOTES TO THE
STATEMENT OF PROFIT AND LOSS
1.Employee Benefit Expense
Year ending Year ending 31-
31-3-2012 3-2011
50.000
7.500
Wages 57.500
Salaries
2. Depreciation and Amortisation Expense
Year ending 31-3- Year ending 31-3-
2012 2011

Depreciation on plant and machinery 2.900

Depreciation on Patents and Trade marks 0.483

Depreciation on Furniture and fittings
1.700

5.083
3.Other Expenses

Year ending 31-3- Year ending 31-3-2011

2012

Rent 4.950
Sundry Expenses 7.050
12.000
 Note No. Figures as at 31-3- Figures as at 31-
2012 3- 2011

I.Equity and liabilities A

(1) Shareholders Fund 100.000
(a) Share Capital B
(b) Reserves and Surplus 42.738
Total 142.738
(2) Current liabilities
Trade Payables (creditors) 17.500
Short-term Provisions 21.209
Total 38.709
Total of Equity and Liabilities
(1)+(2) 181.447
 Figures as at 31-3-
2012

II.ASSETS
Non-Current Assets
Fixed Assets
(i) Tangible Assets 41.400
(ii) Intangible Assets 4.347
Total Fixed Assets 45.747

Current Assets
Inventories 82.000
Trade Receivables(Debtors) 37.500
Cash and Cash Equivalents 16.200
135.700

Total of all Assets 181.447

ACCOMPANYING NOTES TO THE
BALANCE SHEET
A. Share Capital
31-3-2012 31-3-2011

Paid –up Capital :

10,000 Equity Shares of Rs.10 each, fully paid up 100.000
B. Reserves and Surplus

31-3-2012 31-3-2011

Reserve 15.500
Surplus Account :
As at 1-4-2011 15.030
Profit for the year 21.208
Less:Dividend 9.000
12.208
27.238

42.738
 H.Short –term Provisions
31-3-2012 31-3-2011

Provision for Taxation 21.209

I. Tangible Assets
31-3-2012 31-3-2011

Plant and Machinery (at cost assumed)

29.000 26.100
Less: Depreciation 2.900

Furniture and fittings (at cost assumed) 17.000

Less: Depreciation 1.700 15.300

41.400
J. Intangible Assets

31-3-2012 31-3-2011

Patents and Trade Marks (At Cost assumed)

4.830 4.347
Less: Depreciation 0.483
O.Inventories
31-3-2012 31-3-2011

Stock 82000
O.Inventories
31-3-2012 31-3-2011

Stock 82000
• P. Trade receivable

31-3-2012 31-3-2011

Debtors 37500
(less than 6 months
assumed)
• cash and cash equivalents

31-3-2012 31-3-2011

Cash at bank 16200

 DIVISIBLE PROFIT
The term “divisible profit” is a very complicated term because all
profits are not divisible profits. Only those profits are divisible
profits which are legally available for dividend to shareholders.
The Principles of determination of the divisible profits are
governed by section 250 of the companies Act, which is
reproduced below :
1) No dividend shall be declared or paid by a company for any
financial year except out of the profits of the company.
2) Or out of profits of the company for any previous
financial year or years arrived at after providing for
depreciation in accordance with those provisions
and remaining undistributed or out of both or up of
moneys provided by the central government or a
state government for the payment of dividend in
pursuance of a guarantee given by the government.
TRANSFER TO RESERVE

Changes in law, taking effect on 1st February, 1975, authorize

government to compel companies to transfer to reserve a part of
their after-tax profits (not exceeding 10%).The government have
promulgated the following rules relating to transfer to reserve:
1) No dividend shall be declared or paid by a company for any financial
year out of the profits of the company for that year arrived at after
providing for depreciation in accordance with the provisions of sub
section (2) of section 205,
 Except after the transfer to reserve of the company a
certain percentage of its profits for that year as
specified:
• Where the Dividend proposed • Transfer to reserve
(i) exceeds10% but does not
exceeds 12.5%
2.5% of the current profits.

(ii) Exceeds 12.5% but des not

exceeds 15%
5% of the current profits.
(iii) Exceeds 15% but does not
exceeds 20%
7.5% of the current profits.
(iv) Exceeds 20%
10%of the current profits.
DECLARATION OF DIVIDEND
OUT OF RESERVE
Prior to February, 1, 1975, dividends could be declared out f
reserves or past profits as laid down in section 205. newly introduced
section 205(A)provides that, if a company wants to use reserve or
past profits for paying a dividend, it will have to comply with
following rules framed by the central government :
(i) The rate of dividend declared shall not exceed the average of the
rates at which dividend was declared by it in the five years
immediately preceding that year or ten year or 10% of paid up
capital, whichever is less.
(ii) The balance of reserves after such withdrawal shall not fall below
15% of its paid –up share capital.
 DIVIDENDS
Shareholders expect some return for the money invested by them in
the company. They get the return on their investment in the form
of dividends given to them for time to time. Thus dividends are the
profits f the company distributed among the shareholders.

SOURCES OF DECLARING DEVIDEND

(i) Out of current profits
(ii) Out of past reserves
(iii) Out of money provided by the government.
 TYPES OF DIVIDEND
• INTERIM DIVIDEND : This dividend is declared between two annual
general meetings. As per regulation 86 of Table A, the Board may
from time to time pay to the shareholders such interim dividends
as appear to it to be justified keeping in view profits of the
company.

• FINAL DIVIDEND : It is a dividend which is declared at the annual

general meeting of the shareholders and is declared by the
shareholders only on the recommendation of the directors.