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
Division II of Schedule III applies to companies preparing financial statements under Ind AS. In practical problems, adjustments are made first and the resulting balances are classified into Equity, Non Current Liabilities, Current Liabilities, Non Current Assets and Current Assets.
Common Journal Entries:
| Particulars | Journal Entry | Effect on Balance Sheet |
|---|---|---|
| Issue of Equity Shares | Bank A/c Dr. → To Equity Share Capital A/c | Increases Equity |
| Securities Premium | Bank A/c Dr. → To Securities Premium A/c | Increases Other Equity |
| Purchase of PPE | PPE A/c Dr. → To Bank/Trade Payables A/c | Increases Non Current Assets |
| Depreciation | Depreciation A/c Dr. → To Accumulated Depreciation A/c | Reduces carrying amount of PPE |
| Purchase of Inventory | Inventory A/c Dr. → To Bank/Trade Payables A/c | Increases Current Assets |
| Credit Purchase | Inventory/Purchases A/c Dr. → To Trade Payables A/c | Increases Current Liabilities |
| Credit Sales | Trade Receivables A/c Dr. → To Revenue A/c | Increases Current Assets |
| Outstanding Expenses | Expense A/c Dr. → To Outstanding Expense A/c | Increases Current Liabilities |
| Prepaid Expenses | Prepaid Expense A/c Dr. → To Expense A/c | Increases Current Assets |
| Long Term Borrowing | Bank A/c Dr. → To Long Term Borrowings A/c | Increases Non Current Liabilities |
| Current Maturity of Borrowing | Long Term Borrowing A/c Dr. → To Current Maturity A/c | Classified under Current Liabilities |
| Provision | Expense A/c Dr. → To Provision A/c | Current or Non Current Liability |
| Deferred Tax Liability | Income Tax Expense A/c Dr. → To Deferred Tax Liability A/c | Non Current Liability |
| Deferred Tax Asset | Deferred Tax Asset A/c Dr. → To Income Tax Expense A/c | Non Current Asset |
| Profit for the Year | Statement of Profit and Loss A/c Dr. → To Retained Earnings A/c | Increases Other Equity |
| Dividend Declared | Retained Earnings A/c Dr. → To Dividend Payable A/c | Reduces Equity and creates Liability |
| Trade Receivables Written Off | Bad Debts A/c Dr. → To Trade Receivables A/c | Reduces Current Assets |
| Investment Purchased | Investment A/c Dr. → To Bank A/c | Non Current or Current Asset depending on classification |
Format of Balance Sheet under Division II
| Particulars | Amount |
|---|---|
| I. EQUITY AND LIABILITIES | |
| 1. Equity | |
| Equity Share Capital | ₹ xxx |
| Other Equity | ₹ xxx |
| 2. Non Current Liabilities | |
| Financial Liabilities | ₹ xxx |
| Provisions | ₹ xxx |
| Deferred Tax Liabilities | ₹ xxx |
| Other Non Current Liabilities | ₹ xxx |
| 3. Current Liabilities | |
| Financial Liabilities | ₹ xxx |
| Trade Payables | ₹ xxx |
| Other Current Liabilities | ₹ xxx |
| Provisions | ₹ xxx |
| Total Equity and Liabilities | ₹ xxx |
| II. ASSETS | |
| 1. Non Current Assets | |
| Property, Plant and Equipment | ₹ xxx |
| Capital Work in Progress | ₹ xxx |
| Investment Property | ₹ xxx |
| Goodwill | ₹ xxx |
| Other Intangible Assets | ₹ xxx |
| Financial Assets | ₹ xxx |
| Deferred Tax Assets | ₹ xxx |
| Other Non Current Assets | ₹ xxx |
| 2. Current Assets | |
| Inventories | ₹ xxx |
| Financial Assets | ₹ xxx |
| Trade Receivables | ₹ xxx |
| Cash and Cash Equivalents | ₹ xxx |
| Other Bank Balances | ₹ xxx |
| Other Current Assets | ₹ xxx |
| Total Assets | ₹ xxx |
Steps for Solving Practical Problems
| Step | Treatment |
|---|---|
| 1. Identify balances | Analyse the trial balance and additional information. |
|
2. Record adjustments |
Pass necessary adjustment entries for depreciation, provisions, outstanding expenses, tax, etc. |
| 3. Classify items | Classify assets and liabilities as current or non current. |
| 4. Calculate Equity | Determine share capital, reserves and retained earnings. |
| 5. Calculate Assets | Determine the carrying amounts of non current and current assets. |
|
6. Calculate Liabilities |
Determine non current and current liabilities after adjustments. |
|
7. Prepare Balance Sheet |
Present items according to Division II of Schedule III. |
|
8. Check total |
Total Assets = Total Equity and Liabilities. |
