9.2 Company's Final Accounts

8/8/2019 9.2 Company's Final Accounts

1/14

1Dr. Ratnesh Chaturvedi, Session 17 - 18

FINAL ACCOUNTS OF COMPANIES

As per Sec. 209 of Indian Companies Act, every company

is to prepare its Profit & Loss A/c and Balance sheet at the

end of the every financial year as per Schedule VI of the

ICA.

Procedures of

preparing these are

stated in Sec. 211

No Trading Account.Trading Account

items will go to Profit

& Loss Account

Maintenance of Books : Sec. 209, properbooks of accounts at its registered office. If at

any other place then information to Registrar.

Last 8 years records with vouchers and true &

fair view otherwise fine up to Rs. 1000 and

imprisonment up to 6 months. Books areopened to inspection during business hours by

the Registrar / officer authorised by the

Central Govt.


2/14

2

Dr. Ratnesh Chaturvedi, Session 17 - 18

Annual Accounts

Profit & Loss

A/c

Balance Sheet

True and Fair

View of the

state of the

affairs of the

company

1. Profit & Loss A/c as perSchedule VI Part II

2. Balance Sheet as per ScheduleVI Part I

Sec. 211

Except Banking & Insurance Companies

Person fails to the abovecompliance imprisonment

may extend to 6 months orwith fine which may extend toRs. 1000. Imprisonment onlyif he has committed willfully.


3/14

3


Legal Requirements

Sec. 211 : True and Fair View of the state of the affairs of the company. Every

P&L A/c & B/s should comply with the Accounting Standards issued by the

ICAI. If any deviation then disclosure of its reason and financial effect.

Sec. 212 : The Holding company will attach following documents with its

Balance Sheet :

a) A copy of the Balance Sheet of the subsidiary

b) A copy of its Profit & Loss Account

c) A copy of the report of its BOD

d) A copy of the Auditors Report

e) A statement of the holdings companys interest in the subsidiary.


4/14

4


Legal Requirements

Sec. 215 : After approval of Accounts by BOD, it must be signed by its

manager or secretary, if any, and not less than two directors of the company, one

of whom should be a managing director.

Sec. 216 : The Profit & Loss A/c must be annexed to the B/s and the Auditors

Report should be attached there to.

Sec. 217 : A report by the BOD be attached to the B/s. The report should deal

with the following:

a) The state of the companys affairs

b) The amounts, if any, which it proposes to carry to any reserves in the B/s.

c) The amount, if any, which it recommends should be paid by way of dividend

d) Material Changes and commitments


5/14

5


Legal Requirements

Sec. 217 (2AA) : The Board report shall include a Directors Responsibility

Statement, indicating therein :

a) That in the preparation of the annual accounts, the applicable accounting

standards had been followed along with proper explanation relating to

material departures.

b) That the directors had selected such accounting policies and applied them

consistently and made judgements and estimates that are reasonable and

prudent so as to give a true and fair view of the state of affairs of the

company and Profit & Loss A/c at the end of the financial year.

c) That the directors have taken proper and sufficient care for the maintenance

of adequate accounting records in accordance with the provisions of this Actfor safeguarding the assets of the company and for preventing and detecting

fraud and other irregularities.

d) That the directors had prepared the annual accounts on a going concern

basis.


6/14

6


Legal Requirements

Clause 49 (V) of the Listing Agreement (Agreement between a listed company &

stock exchange, effective from Jan. 1, 2006) requires that the CEO and CFO

of the company shall certify to board that :

a) They have reviewed the financial statements and the cash flow statements and

to the best of their knowledge and belief these statements are true.

b) There were no fraudulent or illegal transactions or transactions violative of

the Companys Code of Conduct.

c) They accept the responsibility of internal control.

d) They have indicated to the auditors and audit committee significant changes

in internal control as well as in Accounting Policies during the year.

e) They have indicated to the auditors and audit committee instances of fraud of

which they had become aware.


7/14


Dividend

Dividend is distribution of divisible profit of a company among the

shareholders according to the number of shares held by each of them

in the capital of the company.

Proposed Dividend : The dividend recommended by the BOD. It is

debited to P&L Appropriation A/c and shown in the B/s as provision.

Declared Dividend : The proposed dividend adopted by the

shareholders in AGM is Declared Dividend and is shown in the B/s as

a current liability until paid-off. Declared Dividend must be paid

within 30 days of declaration.

Interim Dividend : The dividend declared by the BOD before the

preparation of Final Accounts as per the provision of AOA. It is

debited to P&L Appropriation A/c.


8/14


Dividend

Final Dividend : The dividend declared by the BOD after the interim

dividend.

Sources of Dividend

1. Out of Current Profits

2. Out of Past Reserves

2. Out of Moneys Provided by the Government


9/14

9


Condition for Declaration of Dividend

As per the provisions of Companies (Transfer of Profit to Reserve) Rules, 1975

framed by the Central Government, no dividend can be declared or paid by the

company for any financial year out of the profits of the company for that year

unless it transfers a percentage of its profit for that year to reserves as specified

below:

1 Where the proposed dividends does not exceed 10% Nothing to transfer

2 Where the proposed dividends exceeds 10% Not less than 2.5% of

but does not exceed 12.5% of the paid-up capital the current profits

3 Where the proposed dividends exceeds 12.5% Not less than 5% of

but does not exceed 15% of the paid-up capital the current profits

4 Where the proposed dividends exceeds 15% Not less than 7.5% of

but does not exceed 20% of the paid-up capital the current profits

5 Where the proposed dividends exceeds 20% Not less than 10% of

of the paid-up capital the current profits


10/14


Following balances are extracted on 31.12.2006 from the books of CEEBEE Ltd.:

Particulars Amount Particulars Amount

Factory Premises at cost 450000 Share Capital:

Plant & Machinery at cost 349160 30000,7% Preference Shares 300000

Motor Lorries at cost 73000 of Rs.10 each

Sundry Debtors 121780 60000, Equity Shares of Rs.10 600000

Bad Debts written off 2850 each

Rent, Rates & Taxes 28400 Profit & Loss Account 16240

Advertisement 19500 Gross Profit 246640

Cash in Hand & at Bank 68500 Provision for D. debts 9000

Director's Fees 3600 Sundry Creditors 129640

Audit Fees 10000 Transfer fees 110

Closing Stock 114600 Accrued wages 12840

Rent & Taxes Paid in Advance 7980 Staff Benevolent Fund 17900

Salaries & Wages 32000

Dividends Paid:

on preference shares 21000

on equity shares (interim) 15000

Discount on issue of shares 15000

1332370 1332370

The provision for DD is

to be made up toRs.10200. The factory

premises, plant &

machinery and motor

lorries are to be

depreciated by 3%, 15%

and 20% respectively.The authorised capital

of the company is

Rs.1000000 divided

into 100000 shares of

Rs.10 each. You are

required to prepare P&La/c and Balance sheet.


11/14


Illustration

The following is the Trial Balance of AB Ltd. as on March 31, 2005. AB Ltd.

was registered with a nominal capital of 100000 shares of Rs.10 each.


Stock as on April 1, 2004 40000 Share Capotal : 60000 Equity 600000

Sales Returns 80000 shares of Rs.10 each

Purchases 664000 Sales 960000

Carriage Inward 27800 Purchases Returns 84000

Rent & Taxes 12000 Sundry Creditors 116000

Sundry Debtors 240000 Bank Loan (Interest @ 12%) 40000

Interest on Bank Loan 4000 Income from Investments 4000

Advertisement Expenses 24000 Discount Received 2800

Bad Debts 2000

Cash at Bank 21000

Discount Allowed 4050

Investments 40000

Furniture & Fittings 45000

Audit Fees 5400

Insurance Premium 2400

Travelling Expenses 2200

Cash in Hand 5400

Salaries 137550

Wages 50000

Building 250000

Plant & Machinery 150000

1806800 1806800

Additional Information:

a) Closing stock as on March 31, 2005 was

Rs.42500.

b) Depreciation is to be provided as follows

: Furniture & Fittings 10%, P&M - 20%,

Building 10%

c) Outstanding salary - Rs.12450

d) Provide 2% for discount on debtors and

create a provision for doubtful debts at

5% on debtors.

e) S.debtors include an amount of Rs.3000due from Mr.Aman and S.creditors

include Rs.3000 due to Mr.Aman.

Prepare P&L A/c and Balance Sheet.


12/14

12

The following is the Trial Balance of BEE Ltd. as on March 31,2005 :


Stock as on April 1,2004 75000 Share Capital : 100000

Purchases 245000

Wages 30000 Sales 340000

Carriage Inward 950PurchasesReturns 10000

Furniture 17000 Sundry Creditors 17500Salaries 7500 Discount 3000

Rent 4000 Profit & Loss A/c 15000

Sundry Expenses 7050 General Reserve 15500

Dividend Paid 9000 Bills Payable 7000

Debtors 27500

Plant & Machinery 29000

Cash at Bank 46200

Patents 4800

Bills Receivable 5000

508000 508000

Additional Information:

a) Closing stock as on March 31, 2005

was Rs.88000.

b) Depreciation is to be provided as

follows : Furniture 10%, P&M - 15%,

and Patents at 5%

c) Outstanding salary - Rs.900 &

Outstanding Rent - Rs.800

d) Provide Rs.510 for doubtful debts.

e) The Board recommends payment of

a dividend @ 15% p.a.. Transfer the

minimum required amount to General

Reserve.

f) Provide for Income Tax at 50%

g) Provide for managerial remuneration

at 10% on profit before tax.


Illustration


13/14

13

The Auto Parts Mfg. Co. Ltd. was registered with an authorised capital of Rs.10,00,000divided into shares of Rs.10 each, of which 40000 shares had been issued and fully paid.

The following is the Trial Balance extracted on 31st March, 2005 :

Particulars Dr. Cr. Particulars Dr. Cr.

Op. Stock 186420 Purchases & Sales 718210 1169900

Returns 12680 9850 Manufacturing Wages 109740

Sundry Mfg. Exp. 19240 Carriage inwards 4910

18% Bank Loan (Secured) 50000 Interest on Bank Loan 4500

Office Salaries 17870 Auditor's fees 8600

Director's Remuneration 26250 Preliminary Expenses 6000

Freehold premises 164210 Plant & Machinery 128400

Furniture 5000 Loose Tools 12500

Debtors & Creditors 105400 62220 Cash in Hand 19530

Cash at bank 96860 Advance payment of tax 84290

P&L A/c on 1/4/2004 38640

Share Capital 400000 Total 1730610 1730610

Assignment


14/14

14

Additional Information:a) On 31st Mar.05 Outstanding mfg. wages and outstanding office

salaries stood at Rs.1890 and Rs.1200 respectively. On the same

date stock was valued at Rs.124840 and loose tools at Rs.10000.

b) Depreciation is to be provided as follows : Furniture 10%, P&M -

15%,

c) Provide for interest on bank loan for 6 months.

d) Write-off one-third of balance of Preliminary Expenses.

e) Make a provision for income tax @ 50%

f) The directors recommended a maiden (first) dividend @ 15% for

the year ending 31st March, 2005 after a transfer of 5% of net profits

to General reserve.


Documents

9.2 Company's Final Accounts