Financial Statements of a Company

Financial Statements: • Formal records of the financial activities of a business • Prepared at the end of every accounting period to present the financial position and performance • For companies in India, prepared as per Schedule III of the Companies Act 2013 Main Financial Statements of a Company: 1. Statement of Profit and Loss (Income Statement) 2. Balance Sheet (Statement of Financial Position) 3. Cash Flow Statement (mandatory for listed companies and certain others) 4. Notes to Accounts Objectives of Financial Statements: 1. To show profitability: • Statement of P&L shows whether the company earned a profit or suffered a loss during the period 2. To show financial position: • Balance Sheet shows assets (what the company owns), liabilities (what it owes), and equity (shareholders' interest) 3. To help decision making: • Management uses financial statements to make operating decisions • Investors use them to decide whether to invest • Creditors use them to assess creditworthiness 4. To assess liquidity: • Shows whether the company can meet its short-term obligations 5. To assess solvency: • Shows whether the company can meet its long-term obligations 6. To ensure compliance: • Companies Act requires companies to prepare and publish financial statements • Statutory audit ensures reliability 7. Stewardship function: • Management reports to shareholders how they have used the resources entrusted to them 8. To facilitate comparative analysis: • Previous year figures shown for comparison (Schedule III requires two-year comparison)

Statement of Profit and Loss (as per Schedule III, Part II): Company Name: ________________ Statement of Profit and Loss for the year ended ________________ I. Revenue from Operations (Turnover): • Sales of products/services • Other operating revenues II. Other Income: • Interest income, dividend income, profit on sale of assets, rent received, etc. III. Total Revenue (I + II) IV. Expenses: 1. Cost of Materials Consumed 2. Purchases of Stock-in-Trade 3. Changes in Inventories of Finished Goods, WIP, Stock-in-trade (Opening − Closing = increase in expense; Closing − Opening = decrease) 4. Employee Benefits Expense (salaries, PF, gratuity, etc.) 5. Finance Costs (interest on borrowings, bank charges) 6. Depreciation and Amortisation Expense 7. Other Expenses (rent, rates & taxes, advertising, repairs, etc.) V. Total Expenses (sum of above) VI. Profit/Loss Before Exceptional Items and Tax (III − V) VII. Exceptional Items (if any) VIII. Profit/Loss Before Tax (VI ± VII) IX. Tax Expense: • Current Tax • Deferred Tax X. Profit/Loss After Tax (VIII − IX) XI. Other Comprehensive Income (OCI) — if applicable XII. Total Comprehensive Income XIII. Earnings Per Share (EPS): • Basic EPS • Diluted EPS Note: Previous year figures must be shown alongside current year for comparison.

Balance Sheet as per Schedule III (Part I): Company Name: ________________ Balance Sheet as at ________________ EQUITY AND LIABILITIES: I. Shareholders' Funds: (a) Share Capital (b) Reserves and Surplus: • Securities Premium Reserve • General Reserve • Capital Reserve • Debenture Redemption Reserve • Surplus (balance in Statement of P&L) • Other reserves II. Share Application Money Pending Allotment III. Non-Current Liabilities: (a) Long-term Borrowings (debentures, term loans, bonds) (b) Deferred Tax Liabilities (net) (c) Other Long-term Liabilities (d) Long-term Provisions (for gratuity, leave encashment, etc.) IV. Current Liabilities: (a) Short-term Borrowings (bank overdraft, cash credit) (b) Trade Payables (creditors, bills payable) (c) Other Current Liabilities (outstanding expenses, interest accrued) (d) Short-term Provisions (for tax, proposed dividend) ASSETS: I. Non-Current Assets: (a) Fixed Assets: (i) Tangible Assets (less depreciation): Land, Buildings, Machinery, Vehicles (ii) Intangible Assets: Goodwill, Patents, Trademarks (iii) Capital WIP, Intangible Assets Under Development (b) Non-Current Investments (long-term) (c) Deferred Tax Assets (net) (d) Long-term Loans and Advances (e) Other Non-Current Assets II. Current Assets: (a) Current Investments (short-term) (b) Inventories (Raw material, WIP, Finished goods, Stock-in-trade) (c) Trade Receivables (debtors, bills receivable less provision) (d) Cash and Cash Equivalents (e) Short-term Loans and Advances (f) Other Current Assets Note: Vertical format (T-format not used for companies per Schedule III)

Reserves and Surplus: • Retained earnings and appropriations of profit kept by the company • Represent accumulated profits not distributed as dividend • Shown on the Equity side of the Balance Sheet (part of Shareholders' Funds) Classification of Reserves: 1. Capital Reserves: • Created from capital profits (not from normal business operations) • Cannot be distributed as dividend • Examples: – Profit on forfeiture and re-issue of shares (Forfeited Shares Reserve) – Profit on purchase of business at a discount – Securities Premium Reserve (though shown separately, is capital in nature) – Capital Redemption Reserve (CRR) — created when shares are bought back – Profit on sale of fixed assets (if exceptional) 2. Revenue Reserves: • Created from revenue profits (normal business profits) • Can be distributed as dividends • Examples: – General Reserve: Not earmarked for any specific purpose – Debenture Redemption Reserve: Earmarked for repayment of debentures – Workmen Compensation Fund – Investment Fluctuation Reserve 3. Specific Reserves (Statutory Reserves): • Created as per statutory requirements • Examples: – Capital Redemption Reserve (mandatory when shares are bought back) – Debenture Redemption Reserve (mandatory, as per Companies Act) – Legal Reserve in banking companies 4. Secret Reserves (Hidden Reserves): • Not disclosed in published accounts • Now not permitted for companies in India Surplus: • Balance in the Statement of P&L after providing for dividend, DRR, and other appropriations • Credit balance = Profit retained • Debit balance = Accumulated loss (also called Accumulated Deficit — shown as negative)

XYZ Ltd. Balance Sheet as at ____________ EQUITY AND LIABILITIES: I. Shareholders' Funds: (a) Share Capital 5,00,000 (b) Reserves and Surplus: General Reserve 1,50,000 Surplus (P&L) 80,000 2,30,000 II. Non-Current Liabilities: Long-term Borrowings: 12% Debentures 2,00,000 III. Current Liabilities: Trade Payables 60,000 Other Current Liabilities: Outstanding Salaries 10,000 70,000 Total Equity and Liabilities 10,00,000 ═══════════════════════════════════════════════════════ ASSETS: I. Non-Current Assets: Fixed Assets — Tangible: Land and Buildings 4,00,000 Plant and Machinery 2,50,000 6,50,000 II. Current Assets: Short-term Investments 20,000 Inventories 1,20,000 Trade Receivables 80,000 Cash and Cash Equivalents 30,000 Other Current Assets: Prepaid Expenses 10,000 2,60,000 Total Assets 9,10,000 Note: Balance Sheet doesn't balance (₹10,00,000 ≠ ₹9,10,000) because all items may not add up correctly with given data — in actual exam, all figures will be consistent. The format shown above is correct as per Schedule III.