Discussion on various aspects of preparation of final accounts as per Companies Act, 2013

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Discussion on various aspects like books of accounts, presentation and preparation of final accounts, treatment of transaction held prior to incorporation of the company.

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Avijit Das 12 months 1 Answer 589 views Gold 0

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  1. Schedule III to the Companies Act, 2013 (  Revised Schedule VI to the Companies Act, 1956) gives general instructions for preparation of Balance Sheet (Part I) and Statement of Profit and Loss (Part II) of a company. Schedule III also contains general instructions regarding preparation of Consolidated Financial Statements. The disclosure requirements in the schedule are in addition to the disclosure requirements specified in the accounting standards prescribed under the Companies Act, 2013. Such disclosures are required to be made in the notes to accounts.

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    Books of Accounts –Companies Act, 2013 provided the meaning of Books of Accounts. As per definition contained in Section 2(13) OF the Act, Books of Accounts includes records maintained in respect of

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    1.       all sums of money received and expended by a company and matters in relation to which receipts and expenditure take place;

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    2.       all sales and purchases of goods and services of the company;

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    3.       the assets and liabilities of the company; and 

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    4.       the items of cost as may be prescribed under section 148 in the case of company which belongs to any class of company specified under that section.

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     Financial Statement- Performance of company can be checked by financial statements of company.So financial statements shall give true and fair view of affairs of the company.  Section 2(40) of the Companies Act, 2013 defines as Financial statements includes-

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    ·         Balance Sheet;

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    ·         Profit and Loss Account;

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    ·         Cash Flow statement

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    ·         Statement of change in equity if applicable;

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    ·         Any explanatory notes annexed to or forming part of financial statement, giving information required to be given and allowed to be given in form of notes.

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    Compliances while preparing final accounts:

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    a.       Requirements of Schedule III

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    b.      Other statutory requirements

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    c.       Accounting standards issued by the ICAI

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    d.      Statements and Guidance Notes as suggested by the ICAI

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    As per Schedule III an asset or liability shall be classified as current if,

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    a.       It is expected to be realized (settled in case of liability) in, or is intended for sale or consumption in the company’s normal operating cycle, or

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    b.      It is held for the purpose of trading, or

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    c.       It is expected to be realized (or settled in case of liability) within 12 months after the reporting date, or

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    d.      It is cash or cash equivalent (in case of assets), the company does not have an unconditional right to defer settlement of the liability for at least 12 months after reporting date.

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                All other assets/liabilities shall be classified as non-current.

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    Operating Cycle-An operating cycle is the time between the acquisition of assets for processing and their realization in cash. If it is not possible to identify operating cycle, then duration of 12 months shall be considered as an operating cycle.

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    Place of maintenance books of accounts- Books of accounts are to be prepared, kept and maintained at the company’s registered office. In case the board decides to maintain such books of accounts at a place other than the registered office, it is the duty of the company to inform the ROC within 7 days in e-form AOC-5. Books of Accounts need to be prepared on accrual basis and double entry system.

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    Approval of Financial Statements-Financial statement of the company should be approved and signed by prescribed persons on behalf of Board of Directors of the Company as per section 134. These signed financial statements should be forwarded to auditors of the company for their report.

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    Circulation of Financial Statements- Financial statements along with Board Report and Auditors Report need to be circulated to members and other entitled persons. These Financial statements should be circulated at least 21 days before the day of the meeting in which Financial statements are laid as per section 136 of the Act.

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    Filling of Financial statements- Section 137 of the Act requires that company shall file concerned ROC its balance sheet, Profit and Loss account, and all the documents which are required to be annexed or attached to the balance sheet-

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    ·         Within 30 days from the date on which said documents were laid at annual general meeting of the company; or

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    ·         If annual general meeting has not been held, then within 30 days from the day on which annual general meeting should be held.

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    Profit or Loss Prior to Incorporation- The amount of profit or loss of a business prior to the date the company came into existence is known as pre incorporation profits or losses.

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    If there is a loss it is either written off to the profit and loss account or shown as “loss prior to incorporation” on the Asset side of the balance sheet. Alternatively it may be debited to the goodwill account.On the other hand,if there is any pre-incorporation profit, it is credited to the capital reserve account or adjusted against goodwill account. Such profitscannot be distributed as dividend amongst the members of the company.

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