Preparation of Balance sheet After Reduction (Schedule III to Companies Act 2013)

After a company undergoes capital reduction as part of internal reconstruction, it must prepare a revised balance sheet in accordance with Schedule III of the Companies Act, 2013. This revised balance sheet should present a true and fair view of the company’s financial position, reflecting changes in share capital, reserves, and assets due to the reduction process.

The key objective is to clean up the balance sheet by eliminating accumulated losses, writing off fictitious or intangible assets, and showing the adjusted share capital.

Components Affected in the Balance Sheet

1. Equity and Liabilities

   • Share Capital (reduced amount)

   • Reserves & Surplus (including Capital Reserve, if any)

2. Assets

   • Fictitious assets written off (e.g., preliminary expenses, goodwill)

   • Overvalued fixed or current assets adjusted

   • Corrected balance of accumulated losses

General Format (As per Schedule III – Division I for Non-Ind AS Companies)

I. EQUITY AND LIABILITIES

1. Shareholders’ Funds

• (a) Share Capital

• (b) Reserves and Surplus

2. Non-Current Liabilities

• (a) Long-term borrowings

• (b) Deferred tax liabilities (Net)

• (c) Long-term provisions

3. Current Liabilities

• (a) Short-term borrowings

• (b) Trade payables

• (c) Other current liabilities

• (d) Short-term provisions

II. ASSETS

1. Non-Current Assets

• (a) Fixed Assets

  • Tangible assets

  • Intangible assets (if not written off)

• (b) Non-current investments

• (c) Deferred tax assets (Net)

• (d) Long-term loans and advances

2. Current Assets

• (a) Inventories

• (b) Trade receivables

• (c) Cash and cash equivalents

• (d) Short-term loans and advances

• (e) Other current assets

Example Format After Capital Reduction

Balance Sheet of XYZ Ltd. (Post-Reduction) as at 31st March 2025

I. EQUITY AND LIABILITIES

II. ASSETS

Key Points in Disclosure (Post Capital Reduction)

• Share Capital must reflect the reduced amount.

• Capital Reserve, if generated through capital reduction, should be shown under Reserves & Surplus.

• Fictitious assets like goodwill, preliminary expenses, or deferred revenue expenses should no longer appear in the asset side (if written off).

• Notes to accounts must disclose:

  • Reason for capital reduction

  • Amount reduced and how it was utilized

  • Approval details (special resolution, NCLT order)

  • Impact on shareholders’ equity

Importance of Revised Balance Sheet:

• Provides a clean and realistic view of the company’s financials

• Enhances credibility with investors and lenders

• Helps restore profitability and solvency by eliminating deadweight losses

• Facilitates future funding and restructuring efforts