by The Companies Act, 2013 is the principal legislation governing companies in India. It replaced the Companies Act, 1956 and provides a comprehensive framework for the incorporation, management, administration and regulation of companies. The Act contains provisions relating to share capital, financial statements, accounting standards, audit, directors, corporate governance, corporate social responsibility and investor protection. It also prescribes requirements for preparation and presentation of financial statements through Schedule III. For companies following Ind AS, Division II of Schedule III provides the format and disclosure requirements for financial statements. The Act aims to promote transparency, accountability, good governance and protection of stakeholders.
As per Division II of Schedule III of the Companies Act, 2013
Note: Division II of Schedule III applies to companies required to prepare financial statements in accordance with Ind AS. The following entries are common adjustments used while solving practical problems.
| Particulars / Adjustment | Journal Entry | Effect on Statement of Profit and Loss |
|---|---|---|
| Revenue from operations | Trade Receivables/Bank A/c Dr. → To Revenue from Operations A/c | Added under Revenue from Operations |
| Other income | Bank/Receivable A/c Dr. → To Other Income A/c | Added under Other Income |
| Purchases / Material consumed | Purchases/Inventory A/c Dr. → To Bank/Trade Payables A/c | Considered in calculation of expenses |
| Employee benefits expense | Employee Benefits Expense A/c Dr. → To Bank/Outstanding Salary A/c | Shown as Employee Benefits Expense |
| Depreciation | Depreciation Expense A/c Dr. → To Accumulated Depreciation A/c | Shown as Depreciation and Amortisation Expense |
| Finance cost | Finance Cost A/c Dr. → To Interest Payable/Bank A/c | Shown as Finance Costs |
| Other expenses | Other Expenses A/c Dr. → To Bank/Payables A/c | Shown under Other Expenses |
| Outstanding expense | Expense A/c Dr. → To Outstanding Expense A/c | Increases the relevant expense |
| Prepaid expense | Prepaid Expense A/c Dr. → To Expense A/c | Reduces the relevant expense |
| Accrued income | Accrued Income A/c Dr. → To Income A/c | Increases relevant income |
| Income received in advance | Income A/c Dr. → To Income Received in Advance A/c | Reduces relevant income |
| Bad debts | Bad Debts Expense A/c Dr. → To Trade Receivables A/c | Included in relevant expense |
| Provision for doubtful debts | Impairment Loss A/c Dr. → To Provision for Doubtful Debts A/c | Recognised as expense where applicable |
| Current tax expense | Current Tax Expense A/c Dr. → To Current Tax Liability A/c | Shown under Tax Expense |
| Deferred tax expense | Deferred Tax Expense A/c Dr. → To Deferred Tax Liability A/c | Included in Tax Expense |
| Deferred tax asset recognised | Deferred Tax Asset A/c Dr. → To Tax Expense A/c | Reduces Tax Expense |
| Loss on sale of asset | Bank A/c Dr. / Loss A/c Dr. → To PPE A/c | Loss included in relevant expense |
| Profit on sale of asset | Bank A/c Dr. → To PPE A/c → To Profit on Sale A/c | Profit included in Other Income |
| Inventory adjustment | Statement of Profit and Loss A/c Dr. → To Inventory A/c, where applicable | Closing inventory affects cost of materials/expenses |
| Dividend income | Bank/Dividend Receivable A/c Dr. → To Dividend Income A/c | Included in Other Income |
| Foreign exchange gain | Foreign Exchange Receivable A/c Dr. → To Foreign Exchange Gain A/c | Included in Other Income, where applicable |
| Foreign exchange loss | Foreign Exchange Loss A/c Dr. → To Foreign Exchange Payable A/c | Included in relevant expense |
| Profit for the year | Statement of Profit and Loss A/c Dr. → To Retained Earnings A/c | Transferred to retained earnings after determining profit |
Format of Statement of Profit and Loss under Division II
| Particulars | Amount |
|---|---|
| I. Revenue from Operations | ₹ xxx |
| II. Other Income | ₹ xxx |
| III. Total Income (I + II) | ₹ xxx |
| IV. Expenses | |
| Cost of Materials Consumed | ₹ xxx |
| Purchases of Stock in Trade | ₹ xxx |
| Changes in Inventories | ₹ xxx |
| Employee Benefits Expense | ₹ xxx |
| Finance Costs | ₹ xxx |
| Depreciation and Amortisation Expense | ₹ xxx |
| Other Expenses | ₹ xxx |
| Total Expenses | ₹ xxx |
| V. Profit Before Tax | ₹ xxx |
| Current Tax | ₹ xxx |
| Deferred Tax | ₹ xxx |
| VI. Profit for the Period | ₹ xxx |
| VII. Other Comprehensive Income | ₹ xxx |
| VIII. Total Comprehensive Income | ₹ xxx |
