by The Companies Act, 2013 introduced Schedule III, which prescribes the format for the preparation and presentation of financial statements by companies. Division I of Schedule III applies to companies whose financial statements are prepared in compliance with the Companies (Accounting Standards) Rules, 2006, i.e., those not following Ind AS. It provides a uniform structure for the Balance Sheet and Statement of Profit and Loss, ensuring consistency, comparability, and transparency in corporate reporting.
Final Accounts:
Final Accounts refer to the set of financial statements prepared at the end of an accounting period to ascertain the financial results (profit or loss) and the financial position of a company. These accounts include:
-
Statement of Profit and Loss (showing income, expenses, and profit/loss for the year)
-
Balance Sheet (showing assets, liabilities, and equity on the last day of the accounting year)
-
Notes to Accounts (providing detailed explanations and disclosures)
These statements are prepared after making necessary adjustments for outstanding items, prepaid expenses, depreciation, provisions, and other end-of-year adjustments.
Format of Financial Statements (Division I – Schedule III)
(A) Balance Sheet
According to Schedule III, the Balance Sheet is prepared in the vertical format as follows:
Name of the Company
Balance Sheet as at [date]
| Particulars | Note No. | Figures as at the end of current reporting period | Figures as at the end of previous reporting period |
|---|---|---|---|
| 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) | |||
| 3. Current Liabilities | |||
| a) Short-Term Borrowings | |||
| b) Trade Payables | |||
| c) Other Current Liabilities | |||
| d) Short-Term Provisions | |||
| Total | |||
| II. ASSETS | |||
| 1. Non-Current Assets | |||
| a) Fixed Assets (Tangible and Intangible) | |||
| b) Non-Current Investments | |||
| c) Deferred Tax Assets (Net) | |||
| 2. Current Assets | |||
| a) Inventories | |||
| b) Trade Receivables | |||
| c) Cash and Cash Equivalents | |||
| d) Short-Term Loans and Advances | |||
| Total |
(B) Statement of Profit and Loss
Name of the Company
Statement of Profit and Loss for the year ended [date]
| Particulars | Note No. | Current Year (₹) | Previous Year (₹) |
|---|---|---|---|
| I. Revenue from Operations | |||
| II. Other Income | |||
| III. Total Revenue (I + II) | |||
| IV. Expenses: | |||
| Cost of Materials Consumed | |||
| Purchase of Stock-in-Trade | |||
| Changes in Inventories of Finished Goods, WIP and Stock-in-Trade | |||
| Employee Benefits Expense | |||
| Finance Costs | |||
| Depreciation and Amortization Expense | |||
| Other Expenses | |||
| Total Expenses | |||
| V. Profit Before Tax (III – IV) | |||
| VI. Tax Expense: | |||
| (a) Current Tax | |||
| (b) Deferred Tax | |||
| VII. Profit for the Period (V – VI) |
Typical Adjustments in Final Accounts (Maximum 4 Adjustments)
When preparing the final accounts, certain adjustments are made to ensure that incomes and expenses are recorded in the correct accounting period. Let’s consider a problem with 4 adjustments and show how they affect the final accounts.
illustration:
The following Trial Balance has been extracted from the books of XYZ Ltd. as on 31st March 2025:
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Share Capital | 5,00,000 | |
| Reserves and Surplus | 50,000 | |
| Sales | 10,00,000 | |
| Purchases | 6,00,000 | |
| Wages | 80,000 | |
| Salaries | 60,000 | |
| Rent | 24,000 | |
| Plant and Machinery | 3,00,000 | |
| Debtors | 2,00,000 | |
| Creditors | 1,50,000 | |
| Closing Stock (31.03.2025) | 90,000 | |
| Cash and Bank | 1,46,000 | |
| Total | 15,00,000 | 15,00,000 |
Adjustments:
-
Depreciate Plant and Machinery @ 10% p.a.
-
Outstanding Salary ₹10,000.
-
Rent prepaid ₹4,000.
-
Create Provision for Doubtful Debts @ 5% on Debtors.
Step 1: Adjustments and Their Treatment
| Adjustment | Journal Entry | Effect on Accounts |
|---|---|---|
| (1) Depreciation on Plant & Machinery ₹30,000 | Depreciation A/c Dr. ₹30,000 → To Plant & Machinery A/c ₹30,000 | Expense in P&L; Asset reduced in Balance Sheet |
| (2) Outstanding Salary ₹10,000 | Salary A/c Dr. ₹10,000 → To Outstanding Salary A/c ₹10,000 | Add to Salary expense; show as Current Liability |
| (3) Prepaid Rent ₹4,000 | Prepaid Rent A/c Dr. ₹4,000 → To Rent A/c ₹4,000 | Deduct from Rent expense; show as Current Asset |
| (4) Provision for Doubtful Debts ₹10,000 (5% of ₹2,00,000) | Profit & Loss A/c Dr. ₹10,000 → To Provision for Doubtful Debts A/c ₹10,000 | Expense in P&L; Deduct from Debtors in Balance Sheet |
Step 2: Preparation of Statement of Profit and Loss
XYZ Ltd.
Statement of Profit and Loss for the year ended 31st March 2025
| Particulars | Amount (₹) |
|---|---|
| Revenue from Operations (Sales) | 10,00,000 |
| Less: Expenses | |
| Purchases | 6,00,000 |
| Wages | 80,000 |
| Salaries (60,000 + 10,000 O/S) | 70,000 |
| Rent (24,000 – 4,000 Prepaid) | 20,000 |
| Depreciation on Plant & Machinery | 30,000 |
| Provision for Doubtful Debts | 10,000 |
| Total Expenses | 7,10,000 |
| Net Profit before Tax | 2,90,000 |
Step 3: Preparation of Balance Sheet
XYZ Ltd.
Balance Sheet as at 31st March 2025
| Particulars | Note No. | Amount (₹) |
|---|---|---|
| I. EQUITY AND LIABILITIES | ||
| Share Capital | 5,00,000 | |
| Reserves and Surplus | 50,000 | |
| Current Liabilities: | ||
| Creditors | 1,50,000 | |
| Outstanding Salary | 10,000 | |
| Total | 7,10,000 | |
| II. ASSETS | ||
| Non-Current Assets: | ||
| Plant and Machinery (3,00,000 – 30,000) | 2,70,000 | |
| Current Assets: | ||
| Inventories (Closing Stock) | 90,000 | |
| Debtors (2,00,000 – 10,000) | 1,90,000 | |
| Prepaid Rent | 4,000 | |
| Cash and Bank | 1,46,000 | |
| Total | 7,10,000 |
Explanation of the Adjustments:
- Depreciation
Depreciation represents the reduction in the value of fixed assets due to wear and tear, passage of time, or obsolescence. It is a non-cash expense and must be charged against profits before determining the net result.
-
Outstanding Expenses
Expenses that relate to the current year but remain unpaid at year-end must be recognized as liabilities and added to the concerned expense in the Profit and Loss Account.
-
Prepaid Expenses
Prepaid expenses are payments made for the next accounting period. They must be deducted from the respective expense account and shown as current assets in the Balance Sheet.
-
Provision for Doubtful Debts
A percentage of debtors is often set aside to cover possible bad debts. This provision is created as an expense in the Profit and Loss Account and deducted from Trade Receivables in the Balance Sheet.
Key Features of Schedule III (Division I) Presentation
-
Vertical format of presentation (no horizontal T-form allowed).
-
Proper classification of items under current and non-current heads.
-
Notes to Accounts to provide detailed disclosures.
-
Comparative figures for the previous year must be presented.
-
Rounding off should be done according to the company’s turnover.
-
True and Fair View must be ensured in presentation.
