At every annual general meeting of the shareholders, the Board of Directors of the company should lay before the shareholders, a balance sheet and profit and loss account as at the end of the accounting period.
The annual accounts of the company must be submitted in an annual general meeting within six months counted from the last day of the accounting period to which the accounts relate.
The period to which the accounts relate is known as the financial year and it may be less than, equal to or greater than 12 months but cannot exceed 15 months.
The Companies Act provides that a statement of all significant accounting policies adopted in the preparation and the presentation of the Balance Sheet and Profit and Loss account shall be disclosed in the company’s Balance Sheet.
Part II of Schedule VI of the Companies Act 1956, does not prescribe any format for the profit and loss account but only outlines the information to be included.
The various items of receipts and expenses should be arranged under most convenient heads.
Sec 211 requirement
According to Part II of Schedule, certain information has to be provided by way of notes to profit and loss account.
The profit and loss appropriation shows in detail the appropriations made from the profits in respect of dividends and transfer to reserves, etc.
Legal Requirements with Respect to Balance Sheet
Part I of Schedule VI of the Companies Act specifies both the form and content of the balance sheet of a company.
So a company may prepare its balance sheet either in the horizontal specified in part I Schedule VI or may prepare it in a statement form, stating the liabilities as sources of funds in the first part and listing the assets as applications of funds in the second part.
SCHEDULE VI (See section 211) 1[PART I Form of Balance-sheet >Additions deletions >Forex fluctuation >Upward revaluation >Downward revaluation FIXED ASSETS p.no.67 Goodwill Land Buildings Leaseholds Railway Sidings Plant and Machinery Furniture and Fittings Development of Property Patents, trademarks and designs Livestock Vehicles etc.
>Additions deletions >Forex fluctuation >Upward revaluation >Downward revaluation INVESTMENTS 67 Investments in Govt. or Trust Securities Investments in shares, debentures or bonds Immovable properties Investments in the capital of partnership firms Balance of unutilised monies raised by Issue
To partnership firms in which the co./its subsidiary is a partner
Bills of Exchange
Advances recoverable in cash or in kind or for value to be received; e.g., Rates, Taxes, Insurance, etc.
Balances with Customs, Port Trust, etc. (where payable on demand).
>Additions deletions >Forex fluctuation >Upward revaluation >Downward revaluation MISCELLANEOUS EXPENDITURE (to the extent not written off or adjusted) Preliminary Expenses Expenses including commission/ brokerage on underwriting or subscription of shares or debentures Discount allowed on issue of shares or debentures Interest paid out of capital during construction Development expenditure not adjusted Other items (Specifying nature) PROFIT AND LOSS ACCOUNT (Debit Balance)
>Additions deletions >Forex fluctuation >Upward revaluation >Downward revaluation PARTICULARS Authorised ..... Shares of Rs....... each Issued ..... Shares of Rs....... each Subscribed ..... Shares of Rs....... each Rs. .... per share called up Less: Unpaid calls Add: Forfeited shares AMOUNT (Rs)
RESERVES AND SURPLUS Capital Reserves Capital Redemption Reserve Share Premium Account Other Reserves Less: Debit balance in profit and loss account, if any Balance in the profit and loss accounts after providing for proposed allocation namely Dividend Bonus or Reserves Proposed additions to Reserves Sinking Funds
(a) the result of the working of the company during the period covered by the account; and
(b) credits or receipts and debits or expenses in respect of non-recurring transactions or transactions of exceptional nature.
Items relating to the Income & Expenditure of the Company arranged under the most convenient heads and
should disclose the following information in respect of the period covered under audit:
PROFIT & LOSS ACCOUNT DISCLOSURE REQUIREMENTS AS PER SCHEDULE VI (PART II) OF THE COMPANIES ACT, 1956
Clause 1.3 disclosure of the name of the Company the corresponding amounts for the immediately preceding financial year In case of companies preparing quarterly or half-yearly accounts Note: · Where the period covered by the previous accounts does not comprise the same period as covered by current period a note thereof should be given. · In case of first accounts, a note thereof should be given. Clause 1.4 The Central Government may direct that a company shall not be obliged to show the amount set aside to provisions other than those relating to depreciation, renewal or diminution in value of assets, Additional Information > “Statement on the Amendments to Schedule VI to the Companies Act, 1956”
clause 2 Expenditure : The expenditure incurred on each of the following items should be disclosed separately for each item :- >Consumption of stores and spare parts. >Power and Fuel >Rent >Repairs to Buildings >Repairs to Machinery >Salaries, Wages and Bonus >Contribution to Provident and other Funds >Workmen and Staff Welfare Expenses ( to the extent not adjusted from any previous provision or reserve ) Note : Information in respect of this item should also be given in the balance sheet under the relevant provision or reserve account.) >Insurance >Rates and Taxes, excluding taxes on income clause 2.12 Miscellaneous expenses Note: Any item under which the expenses are exceeding 1% of the total revenue of the company or Rs. 5,000, which ever is higher, should be shown as a separate and distinct item.
Amounts provided for depreciation, renewals or diminution in the value of fixed assets. Note: · If such provision yes method · If no provision is made for depreciation, the fact that no provision has been made should be stated (and the quantum of arrears of depreciation computed in accordance with section 205 (2) of the Act shall be disclosed by way of a note) Interest on company’s debentures or other fixed loans i.e. loans for fixed periods stating separately the amount of interest, if any (paid or payable) to the Managing Director and the Manager, if any. Commission paid to Sole Selling Agents within the meaning of Section 294 of the Act and other Selling Agents. Brokerage and discount on sales, other than usual trade discounts.
Amounts reserved for- a) Repayment of share capital b) Repayment of loans a) The aggregate, if material, of the amount set aside, or proposed to be set aside, to reserves, but not including provisions made to meet any specific liability. b) The aggregate, if material, of any amounts withdrawn for such reserves The amount of charge for Indian Income Tax and other Indian Taxation on profits including, where practicable, with Indian income-tax any taxation imposed elsewhere to the extent of the relief, if any, from Indian income-tax and distinguishing, where practicable, between income-tax and other taxation. The aggregate amount of the dividends paid and proposed stating whether such amounts are subject to Deduction of Income Tax or not. Amount, if material, by which any items shown in the profit and loss account are affected by any change in the basis of accounting. Prior period and extraordinary items. Note: Refer to Accounting Standard - 5 on “Profit / Loss for the period, Prior Period and Change in Accounting Policies” for appropriate disclosures.
Income : Aggregate amount of sales (turnover) Note: Breakup to be given in respect of each class of goods dealt with by the company indicating amount of sales and quantities of such sales for each class seperately. Amount of income from investments, distinguishing between trade and other investments. Other Income by way of interest, specifying the nature of the income. The amount of Income Tax Deducted a) Dividends from subsidiary companies. b) Provisions for loss of subsidiary companies. Profits or Losses on investment (showing separately the extent of profits or losses earned or incurred on account of membership of a partnership firm)( to the extent not adjusted from any previous reserve or provision) Note : Information in respect of this item should also be given in the balance sheet under the relevant provision or reserve account.)
>Profits or losses in respect of transactions of a kind, not usually undertaken by the company or undertaken in circumstances of an exceptional or non-recurring nature, if material in amount. >Miscellaneous Income. (xv) Amount, if material, by which any items shown in the profit and loss account are affected by any change in the basis of accounting. [4. The profit and loss account shall also contain or give by way of a note detailed information, showing separately the following payments provided or made during the financial year to the directors (including managing directors), or manager, if any, by the company, the subsidiaries of the company and any other person:- (i) managerial remuneration under section 198 of the Act paid or payable during the financial year to the directors (including managing directors), manager, if any; (vi) other allowances and commission including guarantee commission (details to be given)];
(vii) any other perquisites or benefits in cash or in kind (stating approximate money value where practicable); (viii) pensions, etc.,- (a) pensions, (b) gratuities, (c) payments from provident funds, in excess of own subscriptions and interest thereon, (d) compensation for loss of office, (e) consideration in connection with retirement from office.]
Accounting Treatment of Special Items in the Financial Statements of a Limited Company
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