Company Final Accounts

Company Final AccountsCompany Final Accounts

–Company means an association of persons Company means an association of persons formed for the economic gains of its formed for the economic gains of its membersmembers

–Indian Companies Act of 1956 regulates Indian Companies Act of 1956 regulates workings of companies registered under it.workings of companies registered under it.

–Company in the name of a firm need not Company in the name of a firm need not imply that it is a registered company under imply that it is a registered company under the Actthe Act

Characteristics of JSC form of Characteristics of JSC form of Organization Organization

»Voluntary AssociationVoluntary Association»Independent Legal EntityIndependent Legal Entity»Perpetual ExistencePerpetual Existence»Common SealCommon Seal»Limited LiabilityLimited Liability»Transferability of sharesTransferability of shares

Final AccountFinal Account

Maintenance of Proper Books of A/cMaintenance of Proper Books of A/c

- Desirable in the context of SProp and - Desirable in the context of SProp and Partnership FirmsPartnership Firms

Maintenance and Preparation & Submission Maintenance and Preparation & Submission is compulsory u/s 209 and 210 of ICA, 56.is compulsory u/s 209 and 210 of ICA, 56.

Company Final AccountCompany Final Account

U/s 209, Companies must maintain proper U/s 209, Companies must maintain proper books of accounts related tobooks of accounts related to-All moneys received and paid by the coy All moneys received and paid by the coy and matters in respect of which the receipt and matters in respect of which the receipt and expenditure takes placeand expenditure takes place-All sales and purchases of goods All sales and purchases of goods -All the assets and liabilities All the assets and liabilities -Details of the cost (applicable in case of Details of the cost (applicable in case of manufacturing, processing, mining coys)manufacturing, processing, mining coys)

U/s 209, Companies must maintain proper U/s 209, Companies must maintain proper books of accounts related tobooks of accounts related to-All moneys received and paid by the coy All moneys received and paid by the coy and matters in respect of which the receipt and matters in respect of which the receipt and expenditure takes placeand expenditure takes place-All sales and purchases of goods All sales and purchases of goods -All the assets and liabilities All the assets and liabilities -Details of the cost (applicable in case of Details of the cost (applicable in case of manufacturing, processing, mining coys)manufacturing, processing, mining coys)

Company Final AccountCompany Final AccountU/s 209, U/s 209, -Companies must maintain proper books of accounts Companies must maintain proper books of accounts in a manner reflecting true and fair view of the state of in a manner reflecting true and fair view of the state of affairs of the companyaffairs of the company-Account books should neither give false information Account books should neither give false information nor should they conceal any type of information which nor should they conceal any type of information which they are expected to conveythey are expected to convey

-Books are to be kept on accrual basisBooks are to be kept on accrual basis

-Books must be maintained according to double entry Books must be maintained according to double entry systemsystem

Company Final AccountCompany Final AccountU/s 209, the following persons are responsible for U/s 209, the following persons are responsible for keeping the books of A/ckeeping the books of A/c-Where the company has a MD or Manager, such as MD Where the company has a MD or Manager, such as MD or Manageror Manager-Where the company does not have MD or Manager, Where the company does not have MD or Manager, then every director of the companythen every director of the company--Every officer and other employees and agents (acting -Every officer and other employees and agents (acting on behalf or purporting to act on behalf of the company)on behalf or purporting to act on behalf of the company)

Failure to do so, will attract penalty upto 6 months or Failure to do so, will attract penalty upto 6 months or imposition of fine up to Rs. 10.000 or bothimposition of fine up to Rs. 10.000 or both

Responsibilities can be entrusted; in such case Responsibilities can be entrusted; in such case entrusted person will be responsibleentrusted person will be responsible

Company Final Account - Company Final Account - PreparationPreparation

U/s 210:U/s 210:

--At every AGM, the BOD should lay before the At every AGM, the BOD should lay before the company,company,

- A balance sheet as at the end of A/cg - A balance sheet as at the end of A/cg periodperiod

- A P&L A/c for the A/cg period- A P&L A/c for the A/cg period

[Accounting period is called Financial year[Accounting period is called Financial year

has to be 12 months ending March 31wef March has to be 12 months ending March 31wef March 89 through Income Tax Act 61]89 through Income Tax Act 61]


U/s 211:U/s 211:

A. A. Balance Sheet should be in the form as given in Balance Sheet should be in the form as given in Part Part I of Schedule VI to the Companies Act (p. 545)I of Schedule VI to the Companies Act (p. 545)

B. P&L A/c should comply with the requirements of B. P&L A/c should comply with the requirements of Part II of Schedule VI to the Companies Act (p.557)Part II of Schedule VI to the Companies Act (p.557)

C. C. Interpretation of terms under A & B should conform Interpretation of terms under A & B should conform to to Part III of Schedule VI to the Companies Act (p.562)Part III of Schedule VI to the Companies Act (p.562)

DD. Abridged Balance Sheet and Company’s General . Abridged Balance Sheet and Company’s General Business Profile need to conform to the form as given in Business Profile need to conform to the form as given in Part IV of Schedule VI to the Companies ActPart IV of Schedule VI to the Companies Act


Companies need to comply with the Companies need to comply with the Accounting Standards, as framed by ICAI. If Accounting Standards, as framed by ICAI. If not, the following should be disclosed:not, the following should be disclosed:

-The deviation from the accounting standardThe deviation from the accounting standard

-The reasons for such deviations, andThe reasons for such deviations, and

-The financial effects if any, arising due to such The financial effects if any, arising due to such deviationsdeviations


-Financial Statements are to be signed, on behalf of the Financial Statements are to be signed, on behalf of the company, by the persons as per the provisions company, by the persons as per the provisions u/s 215u/s 215 of the Companies Actof the Companies Act-These statements should be sent not less than 21 days These statements should be sent not less than 21 days before the date of AGMbefore the date of AGM-3 copies should be filed with the ROC within 30 days 3 copies should be filed with the ROC within 30 days from the date on which they were laid in the meetingfrom the date on which they were laid in the meeting-These statements should be accompanied by the These statements should be accompanied by the Director’s and Auditors’ ReportsDirector’s and Auditors’ Reports


U/s 217, Directors report should contain the U/s 217, Directors report should contain the followingfollowing in the prescribed format: in the prescribed format:

– – amount of dividend proposedamount of dividend proposed

-names of employees receiving remuneration names of employees receiving remuneration exceeding Rs. 1 lakh pmexceeding Rs. 1 lakh pm

-conservation of energy conservation of energy

-forex earnings and outgoforex earnings and outgo


U/s 217, Directors report should contain the U/s 217, Directors report should contain the Directors Responsibility Statement indicatingDirectors Responsibility Statement indicating

-Preparation of Annual A/c in conformity with Preparation of Annual A/c in conformity with Accounting StandardsAccounting Standards-Selected Accounting policies and applied them Selected Accounting policies and applied them consistently and made judgments and estimates that are consistently and made judgments and estimates that are reasonable and prudentreasonable and prudent-Adequate care taken to maintain and safeguard the Adequate care taken to maintain and safeguard the books of accountsbooks of accounts-Books of A/c were prepared Books of A/c were prepared on a going concern basison a going concern basis

Company Final Account – Company Final Account – Special PointsSpecial Points

Take care of the following:Take care of the following:1.1. HeadingsHeadings

Trading and P&L A/c can be combinedTrading and P&L A/c can be combinedP&L Appropriation A/c follows P&LA/cP&L Appropriation A/c follows P&LA/cAbove the lineAbove the lineBelow the lineBelow the line

2. 2. Abnormal Items:Abnormal Items:Should be disclosed separately; not to be Should be disclosed separately; not to be included with other itemsincluded with other items


3. Adjustments relating to previous year3. Adjustments relating to previous year

All such adjustments are to be shown in the All such adjustments are to be shown in the P&L Appropriation A/cP&L Appropriation A/c

Ex: -Bad Debt Recovered (written off last year)Ex: -Bad Debt Recovered (written off last year)

-Extra provision for tax in respect of profit -Extra provision for tax in respect of profit earned in an earlier yearearned in an earlier year

-Workmen compensation pertain to previous -Workmen compensation pertain to previous yearyear


4. Tax Adjustments:4. Tax Adjustments:-- Tax Deducted At SourceTax Deducted At Source- Advance Payment of TaxAdvance Payment of Tax- Provision for TaxationProvision for TaxationTax rates are fixed by Finance Bill passed by Tax rates are fixed by Finance Bill passed by

Parliament March of every year; but comes Parliament March of every year; but comes into force from April 1into force from April 1stst of next year. of next year.

- Fiscal (Financial) year; Previous Year; - Fiscal (Financial) year; Previous Year; Assessment YearAssessment Year


4.A. Tax Deducted At Source4.A. Tax Deducted At SourceThat is, tax to be deducted at the time of making That is, tax to be deducted at the time of making payment by way of interest, salarypayment by way of interest, salary

Entry:Entry:Salary / Interest A/c DrSalary / Interest A/c Dr

To Bank A/cTo Bank A/cTo Tax Deducted At source A/cTo Tax Deducted At source A/c

Note: Note: P&L A/cP&L A/c is is DebitedDebited with the gross amount of Salary /Interest with the gross amount of Salary /Interest Tax Deducted At Source is shown under Tax Deducted At Source is shown under LiabilitiesLiabilities


4.A. Tax Deducted At Source ….4.A. Tax Deducted At Source ….Tax is also paid at the time of receipt by way of Tax is also paid at the time of receipt by way of dividend, interestdividend, interestEntry:Entry:

Bank A/cBank A/c DrDrTax Deducted At source A/cTax Deducted At source A/c DrDr

To Interest A/cTo Interest A/cNote:Note: P&L A/cP&L A/c is is CreditedCredited with the gross amount of Interest / with the gross amount of Interest / DividendDividendTax Deducted At Source is shown under Tax Deducted At Source is shown under AssetsAssets


4.B. Advance Payment of Tax ….4.B. Advance Payment of Tax ….U/s 208 of Income Tax Act 1961, every person U/s 208 of Income Tax Act 1961, every person is required to pay advance tax when his income is required to pay advance tax when his income tax liablity is expected to be Rs. 5,000 or more tax liablity is expected to be Rs. 5,000 or more in the relevant previous year. in the relevant previous year. Entry:Entry:

Tax paid in Advance A/c Tax paid in Advance A/c DrDrTo Bank A/cTo Bank A/c

Note:Note: Tax paid in advance appears on the Tax paid in advance appears on the Asset Asset sideside of the B/S; and will be adjusted against the of the B/S; and will be adjusted against the Income tax payable after assessment.Income tax payable after assessment.


4.C. Provision for Taxation ….4.C. Provision for Taxation ….Provision for taxation in respect of profit Provision for taxation in respect of profit is made during the accounting period.is made during the accounting period.Entry:Entry:

Profit and Loss A/c Profit and Loss A/c DrDrTo Provision for Taxation A/cTo Provision for Taxation A/c

Note:Note: Provision for Taxation appears as a Provision for Taxation appears as a Liability Liability till the assessment in respect of till the assessment in respect of that year is finalizedthat year is finalized


4. Tax Adjustments: A Problem ….4. Tax Adjustments: A Problem ….Few extracts of TB of a company as on March 31, 06 Few extracts of TB of a company as on March 31, 06 are as follows:are as follows:1. Provision for Taxation (2004-05)1. Provision for Taxation (2004-05) Rs. 10000 CrRs. 10000 Cr2. Advance Tax paid for 2004-052. Advance Tax paid for 2004-05 Rs. 8000 Rs. 8000 Dr Dr3. Advance Tax paid for 2005-063. Advance Tax paid for 2005-06 Rs. 10000 Rs. 10000 Dr Dr4. Tax deducted at Source (2005-06) Rs. 1000 Dr4. Tax deducted at Source (2005-06) Rs. 1000 Dr5. Tax deducted at Source (2005-06) Rs. 2000 Cr5. Tax deducted at Source (2005-06) Rs. 2000 Cr6. Profit and Loss A/c Bal (2004-05) Rs. 20000 Cr6. Profit and Loss A/c Bal (2004-05) Rs. 20000 Cr

Note: Assessment for 2004-05 was finalized during 2005-Note: Assessment for 2004-05 was finalized during 2005-06, and total tax liability for that year was fixed at Rs. 06, and total tax liability for that year was fixed at Rs. 12000. Profit made during 2005-06 before tax amounts 12000. Profit made during 2005-06 before tax amounts to Rs. 30000. The company is in the 35% tax bracketto Rs. 30000. The company is in the 35% tax bracket

Show how these items will appear in the final accounts.Show how these items will appear in the final accounts.


5. Dividends:5. Dividends:- A part of the profit of a company A part of the profit of a company

distributed to shareholdersdistributed to shareholders- BoD has recommend; but approved at BoD has recommend; but approved at

AGMAGM- BoD can declare interim dividend, that BoD can declare interim dividend, that

is, dividend declared b/w two AGMis, dividend declared b/w two AGM- Final Dividend does not include interim Final Dividend does not include interim

unless and otherwise statedunless and otherwise stated- Dividends are to be paid out o divisible Dividends are to be paid out o divisible

profitsprofits


5. Dividends:5. Dividends:Dividends can be paid out ofDividends can be paid out of

- the current profits of the company- the current profits of the company- the past accumulated profits,- the past accumulated profits,- money provide by the Govt. for the - money provide by the Govt. for the payment of dividends in pursuance of the payment of dividends in pursuance of the

guarantee given.guarantee given.- Dividend paid out of Capital is illegal, - Dividend paid out of Capital is illegal,

and Directors are personally liableand Directors are personally liable


5. Dividends: out of accumulated profits if the 5. Dividends: out of accumulated profits if the following conditions are satisfied following conditions are satisfied

1.1. The rate of dividend shall not exceed the The rate of dividend shall not exceed the average of the rates of immediately preceding average of the rates of immediately preceding past 5 years; or 10 % of PUC, whichever is lesspast 5 years; or 10 % of PUC, whichever is less

2.2. Total amount drawn should not exceed an Total amount drawn should not exceed an amount equal to 1/10 of PUC and free reservesamount equal to 1/10 of PUC and free reserves

(The amount drawn must be first used to set off the (The amount drawn must be first used to set off the losses in the FY before utilizing it for declaring div)\losses in the FY before utilizing it for declaring div)\

3. The balance of reserves after such withdrawal shall 3. The balance of reserves after such withdrawal shall not fall below 15 % of its PUCnot fall below 15 % of its PUC


5. Dividend: 5. Dividend: A problemA problemFrom the following particulars, you are to ascertain From the following particulars, you are to ascertain

the amount that can be drawnthe amount that can be drawn5,000 8% Pref share of Rs. 10 each fully paid5,000 8% Pref share of Rs. 10 each fully paid2,00,000 Equity share of Rs. 10 each fully paid2,00,000 Equity share of Rs. 10 each fully paidGeneral ReserveGeneral Reserve Rs. 600,000Rs. 600,000Capital Res on revaluation of assetsRs.100,000Capital Res on revaluation of assetsRs.100,000Share PremiumShare Premium Rs. 100,000Rs. 100,000P&L A/c (Cr)P&L A/c (Cr) Rs. 18,000Rs. 18,000NP for the yearNP for the year Rs. 102,000Rs. 102,000Average rate of dividend during the last five Average rate of dividend during the last five years: 15 %years: 15 %


5. Dividend: 5. Dividend: Rules regarding paymentRules regarding payment- BOD recommends the rate of dividend; but - BOD recommends the rate of dividend; but duly approved at AGM. Members cannot duly approved at AGM. Members cannot increase dividend rate or amountincrease dividend rate or amount- Dividends are to be paid only in cash; not in - Dividends are to be paid only in cash; not in kind like shares (can do so if AoA authorises kind like shares (can do so if AoA authorises and other legal conditions are satisfied)and other legal conditions are satisfied)- Dividend to be paid to those whose names - Dividend to be paid to those whose names appear in the Registrar of memers on that dateappear in the Registrar of memers on that date- U/s 207,All dividends must be paid within 30 - U/s 207,All dividends must be paid within 30 days of declaring dividendsdays of declaring dividends


5. Dividend: 5. Dividend: Rules regarding paymentRules regarding payment- If not, every Director become liable (3 years - If not, every Director become liable (3 years of imprisonment or fine of 5 for 1000 rupee)of imprisonment or fine of 5 for 1000 rupee)- the company is liable to pay simple interest at - the company is liable to pay simple interest at 18 % pa during the period of default18 % pa during the period of default- Equivalent amount is usually transferred to - Equivalent amount is usually transferred to “Dividend Bank A/c)“Dividend Bank A/c)

- U/s 205, Companies are required to create U/s 205, Companies are required to create “Unpaid Dividend a/c” within 7 days after the “Unpaid Dividend a/c” within 7 days after the expiry of 30 days for the dt of declarationexpiry of 30 days for the dt of declaration

- The unclaimed dividend are to be transferred to The unclaimed dividend are to be transferred to “Investor Education and Protection Fund” of “Investor Education and Protection Fund” of Central Govt; after the expiry of 7 years.Central Govt; after the expiry of 7 years.


5. Dividend:5. Dividend: Accounting EntriesAccounting EntriesOn recommending dividend:On recommending dividend:

P&L Appropriation A/cP&L Appropriation A/c DrDrTo Proposed Dividends A/cTo Proposed Dividends A/c

Interim Dividend: At the end of FY, the interim Interim Dividend: At the end of FY, the interim dividend will be transferred to P&L Apprpr A/cdividend will be transferred to P&L Apprpr A/c

P&L Appropriation A/cP&L Appropriation A/c DrDrTo Interim Dividends A/cTo Interim Dividends A/c


6. Transfer to Reserves6. Transfer to ReservesU/s 205, it is mandatory to make transfers U/s 205, it is mandatory to make transfers to reserves before declaring dividends. As to reserves before declaring dividends. As per the rules, the percentage isper the rules, the percentage is

22½ % if the dividend proposed exceed 10 % but not 12½ %½ % if the dividend proposed exceed 10 % but not 12½ %5 5 % if the dividend proposed exceed 12½ % but not 15 % % if the dividend proposed exceed 12½ % but not 15 % 77½ % if the dividend proposed exceed 15 % but not 20 %½ % if the dividend proposed exceed 15 % but not 20 %1010 % if the dividend proposed exceed 20 % % if the dividend proposed exceed 20 %Entry:Entry:

Profit and Loss Appropriation A/c Profit and Loss Appropriation A/c Dr\\Dr\\To General Reserve A/cTo General Reserve A/c


7. Managerial Remuneration7. Managerial RemunerationU/s 198, MR should not exceed 11 % of U/s 198, MR should not exceed 11 % of net profit of the company.net profit of the company.

U/s 349 and 350, provide the following to U/s 349 and 350, provide the following to compute Net Profitcompute Net Profit

Refer the text book, p. 319Refer the text book, p. 319

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Company Final Accounts