ACCOUNTING FOR CORPORATES (BBBH233) - 001 Module 1 - 1573561029351

CHAPTER 1
FINAL ACCOUNTS OF JOINT STOCK COMPANIES
CONTENT
Meaning – Features - Advantages, Capital Structure of Joint Stock Companies, Kinds of
Shares and debentures, Preparation of Income Statement/Statement of Profit and Loss and
Balance Sheet – (vertical) in accordance with the provisions of the Companies Act 2013
Introduction
Meaning of Joint Stock Companies
Definition of JSC
Features of JSC
Advantages and Disadvantages of JSC
Types of Companies
Capital Structure of JSCs
Source of finance available to JSCs
Kinds of Shares
Kinds of Preference shares
Kinds of Debentures
Financial Statements of JSCs
Provisions relating to financial statements under Indian Companies Act 2013
Format of Balance Sheet
Format of Statement of Profit and Loss
Preparation of Balance Sheet
Preparation of Statement of Profit and Loss
Comprehensive illustrations
Exercise Questions
INTRODUCTION
One can do his/her business in any one of the forms of business organizations namely
sole proprietorship or partnership or Hindu Undivided Family (HUF) or Cooperative form or
Joint Stock Company (JSC) form. Lot of disadvantages is there in many of the forms of business
organizations except JSC. Many business organizations are nowadays in the form of JSC;
because it is suitable for large scale operations. So most preferred form of business organization
in the modern economy is joint stock companies.
The never-ending human desire to grow and grow further has given rise to the expansion
of business activities, which in turn has necessitated the need to increase the scale of operations
so as to provide goods and services to the ever-increasing needs of the growing population of
consumers. Large amount of money, modern technology, large human contribution etc. is
required for it, which is not possible to arrange under partnership or proprietorship. To overcome
this difficulty, the concept of ‘Company’ or ‘Corporation’ came into existence.
While the invention of steam power ignited the human imagination to build big machines
for the mass production of goods, the need to separate the management from ownership gave
birth to a form of organization today known as ‘company’. Company form of organization is one
of the ingenious creations of human mind, which has enabled the business to carry on its wealth
creation activities through optimum utilisation of resources. In course of time, company has
become an important institutional form for business enterprise, which has carved out a key place
for itself in the field of business operations as well as in the wealth-generating functions of
society.
MEANING OF JOINT STOCK COMPANY

A joint stock company is a form business organization recognized by law with a
distinctive name, a common seal, a common capital comprising transferable carrying limited
liability and having a perpetual succession.
The word ‘Company’, in everyday usage, implies an assemblage of persons for social purpose,
companionship or fellowship. As a form of organization, the word ‘company’ implies a group of
people who voluntarily agree to form a company.
The word ‘company’ is derived from the Latin word ‘com’ i.e. with or together and
‘panis’ i.e. bread. Originally the word referred to an association of persons or merchant men
discussing matters and taking food together.
An association engaged in a business for profit with ownership interests represented by shares of
stock is known as Joint Stock Company.
However, in law ‘company’ is termed as company which is formed and incorporated
under the Companies Act, 2013 or an existing company formed and registered under any of the
previous company laws. As per this definition of law, there must be group of persons who agree
to form a company under the law and once so formed; it becomes a separate legal entity having
perpetual succession with a distinct name of its own and a common seal. Its existence is not
affected by the change of members.
Company begs its origin in law. It is an organization consisting of individuals, called
shareholders by virtue of holding the shares of a company, who are authorized by law to elect a
board of directors and, through it, to act as a separate legal entity as regards its activities.
Generally, the capital of the company consists of transferable shares, and members have limited
liabilities.
A company form of organisation is the third stage in the evolution of forms of
organisation. Its capital is contributed by a large number of persons called shareholders who are
the real owners of the company. But neither it is possible for all of them to participate in the
management of the company nor considered desirable. Therefore, they elect a Board of Directors
as their representative to manage the affairs of the company. In fact, all the affairs of the
company are governed by the provisions of the Companies Act, 2013.
DEFINITION OF JOINT STOCK COMPANY

“A Joint Stock Company is a voluntary association of individuals for profit, having a
capital divided into transferable shares, the ownership of which is the condition of membership.”
- Prof. L.H. Haney
A company is “an association of many persons who contribute money or money’s worth
to a common stock and employ it in some trade or business, and who share the profit and loss (as
the case may be) arising there from.”
- James Stephenson
According to Justice Marshal, “A corporation is an artificial being, invisible, intangible
and existing only in the contemplation of law. Being a mere creation of law, it possesses only
those properties which the charter of its creation confers upon it, either expressly or as incidental
to its very existence”.
In the same manner, Lord Justice Hanay has defined a company as “an artificial person
created by law with a perpetual succession and a common seal”.
A common thread running through the various definitions of ‘company’ is that it is an
association of persons created by law as a separate body for a special purpose. At the same time,
definitions have laid down certain characteristics of a corporate organization, which make it out
as a separate and unique organization which enables the people to contribute their wealth to the
capital of the company by subscribing to its shares and appointing elected representatives to
carry out the business.
As per Companies Act, 2013 ‘Registered Company’ means a company incorporated
under the Companies Act, 2013 or an existing company incorporated under any of the previous
companies law as specified under Sec(3) (1) (ii) of Companies Act, 2013.
An analysis of above mentioned definitions brings out the following facts or features
about the joint stock company form of business organizations.
 A company is an artificial person under law.
 It has separate legal entity than its members.
 It possesses only those properties conferred on it by the charter of its creation.
 It is a voluntary association of persons.
 It is created to earn profits.
 It has a capital which is contributed by the members.
 The capital is divided into small parts known as shares.
 The persons who own these shares are called members.
 The shares of a company are easily transferable.
 The capital of a company is employed for a common purpose.
FEATURES OF JOINT STOCK COMPANY

Following are the salient features of a company/Incorporation/corporate/joint stock
company.
1. Incorporated Association:
A company comes into existence through the operation of law. Therefore, incorporation of
company under the Companies Act is must. Without such registration, no company can come
into existence. Being created by law, it is regarded as an artificial legal person.
2. Separate Legal Entity:
A company has a separate legal entity and is not affected by changes in its membership.
Therefore, being a separate business entity, a company can contract, sue and be sued in its
incorporated name and capacity.
3. Perpetual Existence:
Since company has existence independent of its members, it continues to be in existence despite
the death, insolvency or change of members.
4. Common Seal:
Company is not a natural person; therefore, it cannot sign the documents in the manner as a
natural person would do. In order to enable the company to sign its documents, it is provided
with a legal tool called ‘Common Seal’. The common seal is affixed on all documents by the
person authorized to do so who in turn puts his signature for and on behalf of the company.
Companies Act, 2013 required common seal to be affixed on certain documents (such as bill of
exchange, share certificates, etc.) Now, the use of common seal has been made optional. All such
documents which required affixing the common seal may now instead be signed by two directors
or one director and a company secretary of the company.
5. Limited Liability:
The liability of every shareholder of a company is limited to the amount he has agreed to pay to
the company on the shares allotted to him. If such shares are fully paid-up, he is subject to no
further liability.
6. Distinction between Ownership and Management:
Since the number of shareholders is very large and may be distributed at different geographical
locations, it becomes difficult for them to carry on the operational management of the company
on a day-to-day basis. This gives rise to the need of separation of the management and
ownership.
7. Not a citizen:
A company is not a citizen in the same sense as a natural person is, though it is created by the
process of law. It has a legal existence but does not enjoy the citizenship rights and duties as are
enjoyed by the natural citizens.
8. Transferability of Shares:
The capital is contributed by the shareholders through the subscription of shares. Such shares are
transferable by its members except in case of a private limited company, which may have certain
restrictions on such transferability.
9. Maintenance of Books:
A limited company is required by law to keep a prescribed set of account books and any failure
in this regard attracts penalties.
10. Periodic Audit:
A company has to get its accounts periodically audited through the chartered accountants
appointed for the purpose by the shareholders on the recommendation of board of directors.
11. Right of Access to Information:
The right of the shareholders of a company to inspect its books of account, with the exception of
books open for inspection under the Statute, is governed by the Articles of Association. The
shareholders have a right to seek information from the directors by participating in the meetings
of the company and through the periodic reports.
12. May sue or be sued:
A company being a legal person can enter into contracts and can enforce the contractual rights
against others. It can sue and be sued in its name if there is a breach of contract by the company.
ADVANTAGES OF JOINT STOCK COMPANIES

The important advantages of company form of ownership are as follows.
Large financial resources:
The company form of business organizations have a chance of mobilizing a large amount of
capital from shareholders and debenture holders and also form the financial creditors, which is
limited in comparison with the other forms of business organisation.
Ease of raising capital:
The corporation is an effective form of business ownership for raising capital easily with the
approval and supervision of the finical or capital market regulator.
Large-scale operation:
The modern factory system, with its extensive use of machinery, division of labour and
application of modern technology, demands and facilitates for large-scale operation which in
turn needs a lot of resources. So company form of organisation can enjoy the benefit of large
scale operation.
Limited Liability:
The liability of shareholders, unless and otherwise stated, is limited to the face value of shares
held by them or guarantee given by them.
Perpetual Existence:
Deaths, insanity, insolvency of shareholders or directors do not affect the company’s existence.
A company has a separate legal entity with perpetual succession.
Professional Management:
In company business, the management is in the hands of the directors who are elected by the
shareholders and are well experienced persons. In order to manage the day-to-day activities,
salaried professional managers are appointed. Thus, the company business offers professional
management.
Expansion Potential:
As there is no limit to the maximum number of shareholders in a public limited company,
expansion of business is easy by issuing new shares and debentures. Companies normally use
their reserves for expansion purposes.
Transferability of Shares/ownership:
If the shareholders of a company are displeased with the progress of the business, they can sell
their shares any time. During all this change of ownership, the business continues to operate.
Diffusion of Risk:
As the membership is very large, the whole business risk is divided among the several members
of the company. This is an advantage particularly for small investors.
Research and development:
Research and Development departments are common in many larger companies, especially those
working with newer products or technologies.
DISADVANTAGES OF JOINT STOCK COMPANIES

The important ones are: Even though the company form of business organizations enjoys
several advantages, they also suffer with certain disadvantageous. They are as follows.
Lack of Secrecy:
As per the legal provisions, a company has to make various statements available to the Registrar
of the Companies, Financial Institutions; the secrecy of business comes down. It is further
reduced when the company provides its annual report to the shareholders as the competitors do
also find out the details of all financial data.
Restrictions:
Compared to proprietorship and partnership, a company has to comply with more legal
requirements. It consumes considerable time and effort.
Management Mischief’s:
Sometimes the managers and directors misuse the company resources for their personal benefits.
This brings losses to the company and company is closed.
Lack of Personal Interest:
Unlike proprietorship and partnership, the day-to-day affairs of a company are looked after by
salaried managers. Since they are the employees not the owners, they do have hardly any
personal interest and commitment in the company. This may result in inefficiency and, in turn,
losses.
Double Taxation:
Corporations also have disadvantages compared to proprietorships and partnerships when it
comes to taxation. Since the corporation and the stockholders are considered to be two different
legal entities, they face the problem of double taxation, meaning that the owners are taxed twice.
High rate of taxation:
Ax rate applicable to the corporate profit is considered to be little high in comparison to other
forms of business organizations.
High Cost of set-up:
Entrepreneurs are always skeptical about starting a private limited company because of the high
costs said to be associated with it.
Report filing and accountability:
Disclosure norms, accountability and report filling are very high as the companies use the
shareholders money. It is also considered to be one of the demerits of company form of business
organizations.
Cumbersome procedures for liquidation:
Closing the business once for all or winding up of a joint stock company is not that easy as it is
in the case of other forms of business organizations. It requires a lot of legal formalities to be
complied with.
TYPES OF COMPANIES
Companies can be classified either on the basis of the liability of its members or on the
basis of the number of members or on any other basis as it suits such basis. Here are some of the
classifications of companies which we may come across in our daily life.
1. Government Company:
According to Section 2(45) of the Companies Act, 2013, “Government company” means any
company in which not less than fifty-one per cent of the paid-up share capital is held by the
Central Government, or by any State Government or Governments, or partly by the Central
Government and partly by one or more State Governments, and includes a company which is a
subsidiary company of such a Government company.
2. Foreign Company:
According to Section 2 (42) of the Companies Act, 2013, “Foreign company” means any
company or body corporate incorporated outside India which –
(a) Has a place of business in India whether by itself or through an agent physically or through
electronic mode; and
(b) Conducts any business activity in India in any other manner.
3. Private Company:
Section 2(68) of the Companies Act, 2013 defines ‘Private company’ as a company which by its
articles,
i. Restricts the right to transfer its shares;
ii. Except in case of One Person Company limits the number of its members to two hundred;
Provided that where two or more persons hold one or more shares in a company jointly, they
shall, for the purposes of this sub-clause, be treated as a single member:
Provided further that—
(A) Persons who are in the employment of the company; and
(B) Persons who, having been formerly in the employment of the company, were members of the
company while in that employment and have continued to be members after the employment
ceased, shall not be included in the number of members; and
(iii) Prohibits any invitation to the public to subscribe for any securities of the company. Shares
of a Private Company are not listed on Stock Exchange.
4. Public Company:
Section 2(71) of the Companies Act, 2013 defines Public Company as a company which— (a) is
not a private company; provided that a company which is a subsidiary of a company, not being a
private company, shall be deemed to be public company for the purposes of this Act even where
such subsidiary company continues to be a private company in its articles.
A company which is a listed public company if it gets unlisted continues to be a public company.
No Minimum Paid-up Share Capital: The minimum paid-up share capital requirement of INR
1,00,000 (in case of a private company) and INR 5,00,000 (in case of a public company) has
been done away with under Companies Act, 2013. Accordingly, no minimum paid-up capital
requirements will now apply for incorporating private as well as public companies in India.
5. One Person Company:
Section 2 (62) of the Companies Act, 2013 defines “One Person Company” as a company which
has only one person as a member.
6. Small Company:
Section 2(85) of the Companies Act, 2013 defines “Small company” means a company, other
than a public company
(i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as
may be prescribed which shall not be more than five crore rupees; or
(ii) turnover of which as per its last profit and loss account does not exceed two crore rupees or
such higher amount as may be prescribed which shall not be more than twenty crore rupees:
Note: The status of a company as a Small Company may change from year to year.
7. Listed Company:
As per Section 2 (52) of the Companies Act, 2013,''listed company” means a company which has
any of its securities listed on any recognized stock exchange. The company, whose shares are not
listed on any recognized stock exchange, is called ‘‘Unlisted Company’’. An unlisted company
can be a public company or a private company.
8. Unlimited Company:
Section 2 (92) of the Companies Act, 2013 defines ''Unlimited company” means a company not
having any limit on the liability of its members.
9. Company limited by Shares:
As per Section 2(22) of the Companies Act, 2013, “Company limited by shares” means a
company having the liabilities of its members limited by the memorandum to the amount if any
unpaid on the shares respectively held by them.
CAPITAL STRUCTURE OF JOINT STOCK COMPANIES

The capital structure is how a firm finances its overall operations and growth by using
different sources of funds. A company’s capital structure refers to the combination of its various
sources of funding. Most companies are funded by a mix of debt and equity, including some
short-term debt, some long-term debt, a number of shares of common stock, and perhaps shares
of preferred stock. The diagram 1.1 explains the typical capital structure of a joint stock
company.
Diagram 1.1
SOURCES OF FINANCE
The companies in this modern world can raise their capital and make their capital
structure by using the following sources of finance.
 Shares
o Equity shares
o Preference shares
 Debentures / Bonds
 Bank Loan
 Public Deposits
 Retained Earnings
 Equity Warrants
 Secured Premium Note
SHARES
Shares refer to the units into which the total share capital of a company is divided. Thus,
a share is a fractional part of the share capital and forms the basis of ownership interest in a
company. The persons who contribute money through shares are called shareholders. In other
words share is one of the equal parts into which a company's capital is divided, entitling the
holder to a proportion of the profits.
The amount of authorized capital, together with the number of shares in which it is
divided, is stated in the Memorandum of Association but the classes of shares in which the
company’s capital is to be divided, along with their respective rights and obligations, are
prescribed by the Articles of Association of the company. As per The Companies Act, a
company can issue two types of shares (1) preference shares, and (2) equity shares (also called
ordinary shares).
KINDS OF SHARES
 Equity Shares
o Ordinary Shares
o Shares with differential rights
o No Par Stock
o Deferred Stock or Founders Shares
o Sweat Equity
 Preference Shares
o Cumulative and Non Cumulative
o Participating and Non Participating
o Redeemable and Irredeemable
o Convertible and Non Convertible
Equity Shares
“An equity share, commonly referred to as ordinary share represents the form of fractional or
part ownership in which a shareholder, as a fractional owner, undertakes the maximum
entrepreneurial risk associated with a business venture. The holders of such shares are members
of the company and have voting rights.” https://www.moneycontrol.com/glossary/stocks/what-
are-equity-shares_3907.html
Ordinary Shares
Common stock is a form of corporate equity ownership, a type of security. The terms voting
share and ordinary share are also used frequently in other parts of the world; "common stock"
being primarily used in the United States. They are known as Equity shares or Ordinary shares in
the UK and other Commonwealth realms. In other words, without any additional features
attached to an equity share, it can be known as ordinary shares.
Shares with differential rights

The holder of these shares has rights which are different from the holder of ordinary shares.
Differential Rights in association with shares are in relation to voting rights, dividend or
otherwise.
The term differential rights with respect to shares can be interpreted to mean the existence of
rights different in nature than the rights that are inherently associated with ordinary shares. The
holder of these shares has rights which are different from the holder of ordinary shares.
Differential Rights in association with shares are in relation to voting rights, dividend or
otherwise. Issuance of shares with differential rights may be used as a tool for strategizing
control and dilution of voting rights in a company.
Section 43(a) of the Companies Act, 2013 provides for the issue of equity shares having
differential rights in accordance with Rule 4 of the Companies (Share Capital and Debentures)
Rules, 2014. Rule 4(1) of the Companies (Share Capital and Debentures) Rules, 2014 stipulates
that a company limited by shares can issue equity shares with differential rights as to dividend,
voting or otherwise, only if such issues of shares meet the following conditions:
 The issue should be authorized by the articles of association;
 The issue should be authorized by the shareholders of the Company by way of an
ordinary resolution; (issue of such shares of a listed company shall be approved by
shareholders through postal ballot)
 The shares with differential rights shall not exceed twenty-six percent of the total post-
issue paid up equity share capital including equity shares with differential rights issued at
any point of time;
 The company should have a consistent track record of distributable profits for the last
three years;
 The company has not defaulted in filing financial statements and annual returns for three
financial years immediately preceding the financial year in which it is decided to issue
such shares;
 The company has no subsisting default in the payment:
1. a declared dividend to its shareholders or
2. repayment of its matured deposits or
3. redemption of its preference shares or debentures that have become due for
redemption or
4. Payment of interest on deposits or debentures
 The Company should not have defaulted on:
1. Repayment of loans from banks and public financial institutions or interest
thereon
2. Payment of dividend on preference shares
3. Payment of statutory dues for employees
4. Depositing moneys into the Investor Education and Protection Fund.
No Par Stock
No par value stock is shares that have been issued without a par value listed on the face of the
stock certificate. So, no-par value stock is issued without the specification of a par value
indicated in the company's articles of incorporation or on the stock certificate.
Deferred Stock or Founders Shares

Those shares issued to the originators or founders of a firm are called as deferred stock or
founders shares. These shares (stock) normally do not receive any return until dividend payable
to common stock holders (ordinary share holders) is paid out.
Sweat Equity
Sweat equity shares means such equity shares as are issued by a company to its directors or
employees at a discount or for consideration, other than cash, for providing their know-how or
making available rights in the nature of intellectual property rights or value additions, by
whatever name called.
PREFERENCE SHARES
Preference shares are those shares which carry certain special or priority rights. Firstly, dividend
at a fixed rate is payable on these shares before any dividend is paid on equity shares. Secondly,
at the time of winding up of the company, capital is repaid to preference shareholders prior to the
return of equity capital. Preference shares do not carry voting rights. However, holders of
preference shares may claim voting rights if the dividends are not paid for two years or more on
cumulative preference shares and three years or more on non-cumulative preference shares.
There are various types of preference shares with differences in their structure. Some of these are
cumulative, non-cumulative, participating, non-participating, redeemable, irredeemable,
convertible, non-convertible, callable, adjustable rate preference shares.
Cumulative and Non Cumulative

Nonpayment of preference dividend does not amount to bankruptcy but this does not mean that
the liability of the company is lost. If the shares are cumulative preference shares, the dividends
are accumulated and therefore paid before anything paid to equity shareholders. Even in the
event of liquidation, accumulated preference dividend and preference share capital will be
redeemed prior to any payment to equity shareholders. Whereas, for non-cumulative preference
shares, if company does not pay dividend in current year, claim of preference shareholder is lost
to that extent. Unless it is specified that preference shares are non cumulative, it is assumed that
it is of cumulative in nature.
Participating and Non Participating

Participating preference shares are a unique type of preference shares which has an additional
benefit of participating in profits of the company apart from the fixed dividend. The distribution
may depend on the terms and conditions mentioned in the agreement which may vary to some
extent from case to case. Other preference shares who do not participate are called non
participating preference shares. Unless it has been mentioned, that preference shares are
participating, it is assumed that it is not participating.
Redeemable and Irredeemable

Redeemable preference share is very commonly seen preference share which has a maturity date
on which date the company will repay the capital amount to the preference shareholders and
discontinue the dividend payment thereon. Irredeemable preference shares are little different
from other types of preference shares. It does not have any maturity date which makes this
instrument very similar to equity except that the dividend of these shares is fixed and they enjoy
priority in payment of both dividend and capital over the equity shares. Since there is an absence
of maturity, they are also known as perpetual preference share capital.
Convertible and Non Convertible

Convertible preference shares have a similar concept of convertible debentures. These shares
possess an option or right whereby they can be converted into an ordinary equity share at some
agreed terms and conditions. Non-convertible simply does not have this option but has all other
normal characteristics of a preference share.
Preference Shares with Callable Options

Whenever a company is issuing long term fixed rate dividend preference shares, at that time
company is having a risk of decrease in rate of preference dividend rate in the market. Hence, it
may issue preference share with a callable feature. In that company has a right to redeem
preference share in between. Such preference shares will be redeemed at a premium, if redeemed
in between, because investor will have a loss in that case. The company will exercise such
option, if rate of preference dividend is falling in the market.
Adjustable Rate Preference Shares
These are some of the innovative types of instruments where the rate of dividend is not fixed and
is formulated based on some calculations relating to the current interest rates etc.
DEBENTURES
A debenture is a (medium or long-term) debt instrument used by large companies to
borrow money, at a fixed rate of interest from the public. The legal term "debenture" originally
referred to a document that either creates a debt or acknowledges it. In the international market,
it can be referred as corporate bond. In India Corporate bonds are known as debentures only. The
term bond is used in India for Government Issue of debt securities.
FEATURES OF DEBENTURES
1. Debentures are the debt instruments.
2. Debenture holders are the creditors of the company
3. Debentures carry a fixed rate of interest.
4. Debenture is redeemed after a fixed period of time.
5. Debentures may be either secured or unsecured.
6. Interest payable on a debenture is a charge against profit and hence it is tax deductible
expenditure.
7. Debenture holders do not enjoy any voting right.
8. Interest on debenture is payable even if there is a loss, so debenture holders bear no risk.
Companies may prefer the debentures in their capital structure because of the following reasons.
 Issue of debenture does not result in dilution of interest of equity shareholders as they do
not have right either to vote or take part in the management of the company.
 Interest on debenture is tax deductible expenditure and thus it saves income tax.
 Cost of debenture is relatively lower than preference shares and equity shares.
 Issue of debentures is advantageous during times of inflation.
The following are few of the disadvantages of using debentures in the capital structure of the
company.
(a) Payment of interest on debenture is obligatory and hence it becomes burden if the
company incurs loss.
(b) Debentures are issued to trade on equity but too much dependence on debentures
increases the financial risk of the company.
(c) Redemption of debenture involves a larger amount of cash outflow.
(d) During depression, the profit of the company goes on declining and it becomes
difficult for the company to pay interest.
KINDS OF DEBENTURES
The debt instrument debenture may be issued with different features. Based on such
features the instrument carries, one can classify the debentures in to various categories as
mentioned below.
 Simple or Naked or unsecured debenture
 Secured or Mortgaged debentures
 Bearer debenture
 Registered debenture
 Redeemable debenture
 Irredeemable debenture
 Convertible debenture
 Non convertible debenture
 Zero coupon debenture
 First debenture
 Second debenture
 Guaranteed debenture
 Collateral debenture
 Callable debenture
 Putable debenture
 Floating interest rate debenture
 Inflation adjusted debenture
 Deep discount debenture
Simple or Naked or unsecured debenture

These debentures are not given any security on assets. They have no priority as compared to
other creditors. They are treated along with unsecured creditors at the time of winding up of the
company. So, they are just unsecured creditors.
Secured or Mortgaged debentures

These debentures are given security on assets of the company. In case of default in the payment
of interest or principal amount, debenture-holders can sell the assets in order to satisfy their
claims. The debentures may be given a floating charge over all assets of company. In this case
debentures are paid in priority to unsecured creditors. The sale proceeds of assets are first applied
to pay debentures with a floating charge.
Bearer debenture
These debentures are easily transferable. They are just like negotiable instruments. The
debentures are handed over to the purchaser without any registration deed. Anybody purchasing
them with a consideration and in good faith becomes the lawful owner of the debentures. The
coupons for interest are attached to the debentures. The bearer can get interest from the
company’ bank when it becomes due.
Registered Debentures:
Registered debentures are those debentures where names, address, serial number, etc., of the
debenture holders are recorded in the register book of the company. Such debentures cannot be
easily transferred to another person
Redeemable debenture
Any debentures which are to be redeemed on the expiry of a certain period are called as
redeemable debentures. The interest on the debentures is paid periodically but the principal
amount is returned after a fixed period. The time for redeeming the debentures is fixed at the
time of their issue
Irredeemable debenture
Irredeemable debentures are those debentures which are not redeemable during the life time of
the company. They are payable either on the winding up of the company or at the time of any
default on the part of the company. The company can retain the right to redeem these debentures
after giving due notice to the debenture-holders.
Convertible debenture
Sometimes convertible debentures are issued by a company and the debenture-holders are given
an option to exchange the debentures into equity shares after the lapse of a specified period.
However, debentures issued at discount can be converted either into the equivalent number of
shares (representing the nominal amount of debentures), credited as paid-up in proportion to the
cash originally paid on the nominal value of debentures or into the proportionately reduced
number of fully paid- up shares.
Convertible debentures give an investor the privilege of being a secured creditor of the company
and to change his status to that of a shareholder if the returns are lucrative and the company is
financially strong.
Convertible debentures may be either’ Fully Convertible Debentures’ (FCD’s) or ‘Partly
Convertible Debentures’ (PCD’s) with or without buy back facilities. Fully convertible
debentures are converted into equity shares after the lapse of a certain period specified at the
time of issue of such debentures. PCD’s are converted into equity shares partly and the balance is
not converted into equity.
The unconvertible part of the PCD is redeemed after the lapse of the specified period. A
company may offer PCD’s with a buy back facility also, whereby; a mention is made in the
application form that the portion of debenture which is not convertible into equity can be sold by
its holder within a specified period at a predetermined (discounted) price.
Non convertible debenture

A Non - Convertible debenture or NCD do not have the option of conversion into shares and on
maturity the principal amount along with accumulated interest is paid to the holder of the
instrument.
Zero coupon debentures

Zero interest bonds are an instrument recently introduced in India by some companies. It is
usually a convertible debenture which yields no interest. The company does not pay any interest
on such debentures. But the investor in a zero interest bond is compensated for the loss of
interest through conversion of such bond into equity shares at a specified future date.
The issue of such debentures enables a company to service its equity in a better way as no
interest is paid against such debentures and conversion of such bond into equity shares at a
specified future date.
The issue of such debentures enables a company to service its equity in a better way as no
interest is paid against such debentures and conversion takes place usually after the project starts
bearing fruits. It also results in a reduction in the project cost to the extent of interest during the
construction period.
First debenture and Second debenture

From the view of priority in the payment of interest and repayment of the principal amount, the
debentures may be either first debentures or second debentures, etc. The debentures which have
to be paid back first or who have preference over other debentures in payment of interest or
called first debentures and the debentures who rank after these are known as second debentures.
Guaranteed debenture
These are debentures or bonds on which the payment of interest and principal of .is guaranteed
by third parties, generally, banks and Government, etc.
Collateral debenture
A company may issue debentures in favour of a lender of money, generally the banks and
financial institutions, as collateral, i.e., subsidiary or secondary, security for a loan raised by it.
These debentures are called collateral debentures and these become effective only when the
company makes a default in the repayment of the loan against which these have been issued.
Callable debenture
A callable bond is a bond that can be called in and paid off by the issuer at a price, called the
‘call price’, stipulated in the bond contract. It gives the advantage to Issuer Company to call the
existing bonds if the interest rates fall in the market below the bond’s coupon rate.
Putable debenture
Generally a company who is in bad need of money will issue Puttable debenture. In this case
debenture holders can ask the company to redeem their debenture and ask for principal
repayment. This type of security can be issued by the company to avoid hostile takeover.
Floating interest rate debenture

The rate of interest payable on these bonds varies periodically depending upon the market rate of
interest payable on the gilt edged securities.
Inflation adjusted debenture

These are the bonds on which both interest as well as principal is adjusted in line with the price
level changes or the inflation rate.
Deep discount debenture

Deep discount debentures/bonds do not carry any interest but it is sold by the issuing company at
deep discount from its eventual maturity value. The difference between the issue price and the
maturity value represents the gain or interest earned by its investor. The Industrial Development
Bank of India (IDBI) issued such DDBs for the first time in the Indian capital market at a price
of Rs. 2,700 against the nominal value of Rs. 1 lakh payable after 25 years
Other Securities issued by JSC

 Equity Warrants
 Secured Premium Note
Equity Warrants
The equity warrant is a paper attached to a bond or preferred stock that gives the holder the right
to buy a fixed number of company’s equity shares at a predetermined price at a future date. The
equity warrant increases the marketability of debt instruments.
When it is issued, it usually has no value but it becomes valuable when the market price of
equity shares moves above the fixed price at which the investor is permitted to buy the equity
shares.
Secured Premium Note

The secured premium note is a tradable instrument with detachable warrant against which the
holder gets equity shares after a fixed period of time.
Note:
Students or the readers of this book are advised to go through any material or website or text
book for gaining better understanding on formation of a company and other related matters.
ACCOUNTING OF JSC
Just like any other form of business organizations joint stock companies do maintain books of
accounts nowadays in electronic form. But the maintenance of books of accounts is to be
according to the companies Act 2013.
SHARE CAPITAL OF JOINT STOCK COMPANY

In today’s world large scale operation of a company calls for a large amount of capital.
The total amount of capital is divided into smaller units. These units are called share. Each share
is assigned a value. This value is called the par value of the share. The total capital is this thus
divided into a large number of shares. This pool is, therefore, called share capital. This scheme
of raising capital through shares (i) helps the company from the operations of large scale
business concerns.
A has to fulfill certain legal requirements if, in later yeas, it decides to either increase or decrease
its share capital. And it has to state its maximum capital in the memorandum. To minimize the
chances of undergoing legal formalities in later years, therefore, it is customary to state a
reasonable amount as the maximum capital. This amount is incorporated in the memorandum of
association and is known as the authorized capital, nominal capital, or registered capital of the
company. Various terms used in relation to share capital are explained in the following
paragraphs.
Authorized Capital:
It is the amount of capital with which the company is registered. This capital is mentioned in the
memorandum of 'Association'. A mention is also made of the number of shares into which this
total capital is divided, and of the par value of shares. In later year, if the company wants to
either increase or decrease this capital, certain legal requirements must be met. This capital is
also known as nominal capital or registered capital.
Issued Capital:
Share offered to the general public for contribution are known as shares issued. The total par
value of such shares is called issued capital. To begin with, a company seldom offers all of its
shares for subscription. Therefore, the amount of issued capital is generally less then the
authorized capital. If a company has an authorized capital of Rs. 10,00,000 divided into 10,000
shares of Rs. 100 each, it may decided of offer 5,000 shares to the general public. In this case the
issued capital is said to be Rs. 5,00,000 divided into 5,000 shares of Rs. 100 each. The
remainder, that is, the difference between the authorized and issued capital is known as unissued
capital.
Subscribed Capital:
Out of the capital number of shares offered by the company, that number of shares which is
taken up by the public is known as shares subscribed. The total par value of shares is called
subscribed capital. For example, out of the 5,000 shares issued by the company, if the public
takes up 4,500 shares, the subscribed share capital is Rs. 4,50,000.
Called-Up Capital:
A company may require payment of the par value either in installments or in one lump sum. This
amount is known as the called-up capital.
Paid –Up Capital:

The total amount by the company out of the total called-up amount is known as the paid-up
capital. Assuming that of Rs. 3,15,000 called-up capital the company receive Rs.3,00,000; the
paid up capital is in the amount of 3,00,000. The remainder of Rs. 15,000 is known as calls
unpaid or calls in arrears. Now-a-days the total par value is collected at the time of application
and as such practically there are no calls in arrears. Presently, therefore, called-up-capitals are in
the same amount.
Reserve capital:
Reserve Capital:
It is the portion of the 'Subscribed Capital' which the company, through a special resolution,
reserves to call in the event of window up. Assume that 4,500 shares Rs. 100 are subscribed, the
company decided to call Rs. 70 per share and passed a special resolution to the effect that Rs. 30
per share will be called up in the event of window up. The company is said to have reserve
capital without leave of the court, and it cannot be dealt with or charged by creditors.
Note: It is to be noted by the readers that in today’s capital issue by the companies, through IPO
or FPO or any other mode, the companies collect all the money as a lump sum mainly in book
building process. So the called up, paid up may not be much relevant for those companies.
FINANCIAL STATEMENTS OF JSCs

There is no statutory obligation upon sole proprietorship or partnership firm to prepare
final accounts, but companies have a statutory obligation to prepare final accounts as required by
section 128 of the Companies Act, 2013. The general principles of preparing the final accounts
of joint stock companies are the same as in the case of the sole proprietorship or partnership
firms. But, in addition to these principles, a joint stock company must conform to certain legal
provisions as given in the Companies Act, 2013 in respect of forms and contents of the final
accounts. It should be remembered that the provisions of the Companies Act, 2013 relating to
forms and contents of the final accounts do not apply to insurance, banking and electricity
companies which are governed by special Acts relating to such companies.
Financial statements are the formal reports through which the corporate management
communicates financial information to its owners and various other external parties. These
normally refer to:
(a) The balance sheet (position statement), and
(b) The statement of profit and loss.
Now-a-days, the cash flow statement is also taken as an integral component of the financial
statements of a company.
Financial statements are prepared …..

 To provide information about economic resources and obligations of a business
 To provide information about the earning capacity of the business
 To provide information about cash flows
 For disclosing accounting policies:
Provisions relating to financial statements under Indian Companies Act 2013 (w.e.f. 01-04-
2014)
1. Section 129 of Companies Act 2013 provides for preparation of financial statements.
2. Section 2(40) to include balance sheet, profit and loss account/income and expenditure
account, cash flow statement, statement of changes in equity and any explanatory note annexed
to the above.
3. New section 129 corresponds to existing section 210. It provides that the financial statements
shall give a true and fair view of the state of affairs of the company and shall comply with the
accounting standards notified under new section 133.
4. It is also provided that the financial statements shall be prepared in the form provided in new
schedule III of Companies Act, 2013.
5. It may be noted that in the new schedule III the provisions for preparation of balance sheet and
statement of profit and loss have been given which are on the same lines as in the previously
existing schedule VI.
6. Further, in the new Schedule III detailed instructions have been given for preparation of
consolidated financial statements as consolidation of accounts of subsidiary companies is now
made mandatory in section 129.
7. It may be noted that for the first time a provision has been made in the new section 129(3)that
if a company has one or more subsidiaries it will have to prepare a consolidated financial
statement of the company and of all the subsidiaries in the form provided in the new schedule
III of Companies Act, 2013.
8. The company has also to attach along with its financial statement, a separate statement
containing the salient features of the financials of the subsidiary companies in such form as may
prescribed by the rules.
9. It is also provided that if the company has interest in any associate company or a joint venture
the accounts of that company as well as joint venture shall be consolidated.
10. For this purpose associate company has been defined in new section 2(6) company has
significant influence i.e. it has. 20% of the total share capital of the company or has control on
the business decision under an agreement.
11. The Central Government has power to exempt any companies from complying with any of
the requirements made under the section.
Books of Accounts to be maintained by Joint Stock Companies
Section 128 of the Companies Act, 2013 requires that every company shall prepare and keep all
its registered office books of accounts and other relevant books and papers and financial
statements for every financial year which give a true and fair view of the state of affairs of the
company, including that of its branch office or offices, if any, and explain the transactions
effected both at the registered office and its branches and such books will be kept on accrual
basis and according to the double entry system of accounting.
All or any of the books of account aforesaid and other relevant papers may be kept at such other
place in India as the Board of Directors may decide and where such a decision is taken, the
company shall, within seven days thereof, file with the registrar a notice in writing giving full
address of that other place.
The company may keep such books of account or other relevant papers in electronic mode in
such manner as may be prescribed.
Under Section 129 of the Companies Act, 2013, at the annual general meeting of a company, the
Board of Directors of the company should lay financial statements before the company:
Financial Statements as per Section 2(40) of the Companies Act, 2013, inter-alia include
(i) a balance sheet as at the end of the financial year;
(ii) a profit and loss account, or in the case of a company carrying on any activity not for
profit, an income and expenditure account for the financial year;
(iii) cash flow statement for the financial year;
(iv) a statement of changes in equity, if applicable; and
(v) any explanatory note annexed to, or forming part of, any document referred to in (i) to
(iv) above:
Provided that the financial statement, with respect to One Person Company, small company
and dormant company, may not include the cash flow statement.
Requisites of Financial Statements

It should give a true and fair view of the state of affairs of the company as at the end of
the financial year.
Provisions Applicable
(1) Specific Act is Applicable
For instance, any
(a) insurance company
(b) banking company or
(c) any company engaged in generation or supply of electricity1∗ or
(d) any other class of company for which a Form of balance sheet or Profit and
loss account has been prescribed under the Act governing such class of
company
(2) In case of all other companies

Balance Sheet as per Form set out in Part I of Schedule III and Statement of Profit
and Loss as per Part II of Schedule III
Compliance with Accounting Standards

As per section 133 of the Companies Act, it is mandatory to comply with accounting standards
notified by the Central Government from time to time.
Format of Balance Sheet and Statement of Profit and Loss

SCHEDULE III
PART I-BALANCE SHEET
Name of the Company…………………….
Balance Sheet as at………………………
Figures as at Figures as at
the end of the end of
Note
Particulars current previous
No.
reporting reporting
period period
I. EQUITY AND LIABILITIES
1) Shareholder’s Funds
(a) Share Capital
(b) Reserves and Surplus
(c) Money received against share warrants
(2) Share application money pending allotment
(3) Non-Current Liabilities
(a) Long-term borrowings
(b) Deferred tax liabilities (Net)
I Other Long term liabilities
(d) Long term provisions
(4) Current Liabilities
(a) Short-term borrowings
(b) Trade payables
I Other current liabilities
(d) Short-term provisions
Total
II. ASSETS
(1) Non-current assets
(a) Fixed assets
(i) Tangible assets
(ii) Intangible assets
(iii) Capital work-in-progress
(iv) Intangible assets under development
(b) Non-current investments
I Deferred tax assets (net)
(d) Long term loans and advances
(e) Other non-current assets
(2) Current assets
(a) Current investments
(b) Inventories
I Trade receivables
(d) Cash and cash equivalents
(e) Short-term loans and advances
(f) Other current assets
Total
PART-II – PROFIT & LOSS STATEMENT

Name of the Company……………………..
Profit and Loss statement for the year ended………….
Figures as at Figures as at
the end of the end of the
Note
Particulars current previous
No.
reporting reporting
period period
I Revenue from operations (gross)
II Other income
III Total revenue (1+2)
Expenses
(a) Cost of materials consumed
(b) Purchases of stock-in-trade
I Changes in inventories of finished goods, work-in
IV progress and stock-in-trade
(d) Employee benefits expense
(e) Finance costs
(f) Depreciation and amortization expense
(g) Other expenses
Total expenses
Profit before exceptional and extraordinary items
V
and tax (III-IV)
VI Exceptional items
Profit / (Loss) before extraordinary items and tax
VII
(V+/-VI)
VIII Extraordinary items
IX Profit before tax (VlI (-/+)VIII)
Tax expense:
X (I) Current tax expense for current year
(II) Deferred tax
XI Profit / (Loss) from continuing operations (IX+X)
XII Profit (loss) from discontinuing operations
XIII Tax expense of discontinuing operations
Profit/(loss) from Discontinuing operations (after
XIV
tax) (XII-XIII)
XV Profit (Loss) for the period (XI + XIV)
Earnings per equity share
XVI (1) Basic
(2) Diluted
EXPLAINATION
I Revenue from operations
(Cash sales Plus Credit sales Less Sales returns Less Excise Duty)
II Other Income (All incomes other than sales)
III Total Revenue (I + II)
IV Expenses
a) Cost of materials consumed (it given specifically; No need to calculate if not given)
b) Purchases of stock-in-trade (purchases)
c) Changes in inventories of finished goods, work-in-progress & stock-in-trade.
(Opening stock less closing stock)
d) Employees Benefits Expenses (salaries, wages, canteen expenses, their entire employee
welfare expenses, PF contribution of the employer)
e) Finance cost (Interest on borrowings)
f) Depreciation & Amortisation expenses (Dep. On fixed tangible assets & amortisation of
intangible asset)
g) Other expenses (All other revenue expenses & losses + loss by theft/fire etc.
Source: http://www.rajapalayammills.co.in/investors/financial-report/
Source: http://www.rajapalayammills.co.in/investors/financial-report/
PREPARATION OF BALANCE SHEET AND STATEMENT OF PROFIT AND LOSS
Statement of Profit and Loss

Illustration 1
You are given the following information from the books of Siraj Co. Ltd., as on 31st March
2018.
Siraj Co. Ltd
Trial Balance as on 31st March, 2018
Particulars Amount Particulars Amount
Depreciation on premises 8,000 Sales 12,40,000
Materials Consumed 8,00,000 Equity Share Capital 8,00,000
Opening Stock 40,000 Outstanding wages 6,000
Salaries 1,14,000
Bad debts 3,800
Bonus to employees 20,000
Interest on Loan 16,000
Depreciation on machinery 18,000
Conveyance 4,000
Loss on sale of machinery 20,000
Insurance 16,200
Sales Returns 40,000
Provision for Tax 60,000
Machinery 6,00,000
P. F. Contribution 86,000
Premises 1,60,000
Computer 40,000
20,46,000 20,46,000
Solution
Siraj Co. Ltd
Statement of Profit and Loss as on 31st March, 2018
Particulars Note No Amount
(I) Revenue from Operations 1 12,00,000
(II) Other Income -
(III)Total revenue 12,00,000

(IV) Expenses:
(a) Material Consumed 8,00,000
(b) Purchases -
(c) Changes in Inventories 2 (80,000)
(d) Employees benefit expenses 3 2,20,000
(e) Finance Cost 16,000
(f) Depreciation and Amortization Exp 4 26,000
(g) other Expenses 5 44,000
Total Expenses 10,26,000
(V) Profit & Loss before Tax (III-IV) 1,74,000
(VI) Provision for Tax (60,000)
(VII) Profit Loss after Tax (V-VI) 1,14,000
Note to accounts
1 Revenue from Operations
Sales 12,40,000
Less Sales Returns 40,000
12,00,000
2 Changes in Inventories
Opening Stock 40,000
Less Closing Stock (1,20,000)
(80,000)
3 Employees benefit expenses
Salaries 1,14,000
PF Contribution 86,000
2,20,000
4 Depreciation & Amortisation
Depreciation on premises 8,000
26,000
5 Other Expenses
Bad debts 3,800
Conveyance 4,000
Insurance 16,200
44,000
Illustration 2
From the following trial balance of Glory Co. Ltd., as on 31st March 2018, prepare a statement
of Profit and Loss as per schedule III of the companies Act
Glory Co. Ltd.
Interest on
Debentures 32,400 Share Transfer Fees 15,000
Travelling Expenses 10,200 12% Debentures 2,70,000
Delivery van expenses 5,100 Commission received 7,400
Bad Debts 6,500 Sales 6,45,500
Discount 7,000 Share Capital 5,00,000
Purchases 3,15,800
Opening Stock 72000
Freight outward 8,400
Free samples 5,000
Depreciation 38,900
Showroom expenses 11,400
Bank balance 1,58,600
Wages 93,000
Land & Building 4,00,000
Office Equipment 1,45,000
Insurance 6,000
Furniture 1,22,600
Total 14,37,900 Total 14,37,900
Additional information:
Closing stock was valued at Rs.85,500
Solution
Glory Co. Ltd.
Statement of Profit and Loss as on 31st March,2018
(I) Revenue from Operations 6,45,500
(II) Other Income 1 22,400
(III) Total revenue 6,67,900
(IV) Expenses:
(a)Material Consumed 0
(b) Purchases 3,15,800
(c) Changes in Inventories 2 (13,300)
(d) Employees benefit expenses 93,000
(f) Depreciation and Amortization Exp 38,900
(g) Other Expenses 3 59,600
(VI) Provision for Tax 0
Notes to Accounts
1 Other Income
Share Transfer Fees 15,000
Commission Received 7,400
22,400
Less Closing Stock (85,500)
(13,500)
3 Other Expenses
Travelling Expenses 10,200
Delivery van Expenses 5,100
Bad Debts 6,500
Discount 7,000
Freight Outward 8,400
Free samples 5,000
Showroom expenses 11,400
Insurance 6,000
59,600
Illustration 3
You are given the following extracts of ledger balances taken from Vihar Co. Ltd., for the year
ending 31st March 2018. Prepare a statement of P & L a/c as per revised schedule III
Particulars Rs
Excise Duty 8,000
Provision for tax 10,000
Depreciation on Machinery 3,300
Sundry expenses 7,000
Rent 4,000
Salaries 7,500
Materials consumed 90,000
Machinery 25,000
Directors remuneration 20,000
Factory expenses 2,500
Sales 4,55,000
Returns inward 5,000
Purchases 2,35,000
Closing stock 75,000
opening stock 82,000
Wages 30,000
Bank loan 40,000
Interest on Bank loan 4,000
Interest on Investment 5,000
Rent received 3,000
Motive power 12,000
Transport Charges 1,000
Solution
Vihar Co. Ltd.
(I) Revenue from Operations 1 4,42,000
(II) Other Income 2 8,000
(III) Total revenue 4,50,000

(IV) Expenses:
(a) Material Consumed 90,000
(b) Purchases 2,35,000
(c) Changes in Inventories 3 7,000
(d) Employees benefit expenses 4 37,500
(f) Depreciation and Amortization Exp 3,300
(g) Other Expenses 5 46,500
(V)Profit & Loss before Tax (III-IV) 26,700
(VI)Provision for Tax (10,000)
(VII)Profit Loss after Tax (V-VI) 16,700
Notes
1. Revenue from Operations
Sales 4,55,000
Less Sales Returns 5,000
Less Excise Duty 8,000
4,42,000
2. Other Income
Interest on investment 5,000
Rent received 3,000
8,000
3. Changes in Inventories
Less Closing Stock (75,000)
7,000
4. Employees benefit expenses

Salaries 7,500
Wages 30,000
37,500
5. Other Expenses
Sundry expenses 7,000
Rent 4,000
Directors remuneration 20,000
Motive power 12,000
Transport charges 1,000
46,500
Illustration 4
You are given the following extracts of ledger balances taken from Chanakya Co. ltd. for the
year ending 31st March 2018. Prepare a statement of P & L A/C as per revised schedule III
Particulars Rs.
opening stock of finished goods 1,90,500
Cost of material consumed 2,92,000
Salaries to office staff 68,000
Closing stock of finished goods 2,03,000
Interest on debentures paid 16,250
General expenses 8,250
Discount earned 4,900
Cash sales 2,66,000
Credit sales 3,87,500
Income tax refund 11,500
Provision for taxation 30,000
Goodwill written off 18,000
Sales returns 17,000
Provision for bad debts 8,200
Delivery Expenses 7,200
Printing & stationery 22,600
Depreciation on Plant & machinery 50,000
Solution
Chanakya Co Ltd.,
I. Revenue from Operations 1 6,36,500
(II)Other Income 2 16,400
(IV) Expenses:
(a)Material Consumed 2,92,000
(b)Purchases 0
(c)Changes in Inventories 3 (12,500)
(d)Employees benefit expenses 4 1,00,000
(e)Finance Cost 16,250
[f] Depreciation and Amortization Exp 5 68,000
(g)Other Expenses 6 1,28,250
(V)Profit & Loss before Tax (III-IV) 60,900
(VI)Provision for Tax (30,000)
(VII)Profit Loss after Tax (V-VI) 30,900
Notes
1 Revenue from Operations
Cash sales 2,66,000
Less: sales returns (17,000)
6,36,000
2 Other Income
16,400
Opening Stock 1,90,500
Less Closing Stock (2,03,000)
(12,500)
4 Employees benefit expenses

1,00,000

Dep. on Plant & machinery 50,000
68,000
6 Other Expenses
Provision for Bad debts 8,200
Freight on purchases 7,200
1,28,250
Illustration.5
Following ledger balances are taken from Virupaksh Ltd., for the year ending 31/3/2018.
Prepare P & L Account in vertical form with major heads.
Particulars Rs
Stock of finished goods as on 01-04-2017 2,90,000
Stock of work-in-progress as on 01-04-2017 3,93,000
Material consumed 3,15,000
Wages 74,000
Coal & Coke 87,500
Live stock 1,00,600
Patents written off 25,200
Directors fees 57,000
Sales 10,95,000
Depreciation on plant 38,000
Bad debts 16,570
Royalty received 18,300
Bank loan 4,00,000
Administrative expenses 37,400
Interest on loan 60,000
Solution
Virupaksh Co. Ltd.
(I) Revenue from Operations 10,95,000
(II)Other Income 18,300
(IV) Expenses:
(a) Material Consumed 3,15,000
(b) Purchases 0
(c) Changes in Inventories 1 2,39,000
(d) Employees benefit expenses 74,000
(f) Depreciation and Amortization Exp 2 63,200
(g )Other Expenses 3 1,98,470
(VI) Provision for Tax (18,000)
Notes
Opening Stock of :
Work-in-progress 3,93,000
Finished Goods 2,90,000 6,83,000
Less Closing Stock of:
Work-in-progress 2,60,000
Finished Goods 1,84,000 (4,44,000)
2,39,000

63,200
3 Other Expenses
Coal & coke 87,500
Bad debts 16,570
1,98,470
Balance Sheet
COMPREHENSIVE ILLUSTRATIONS
The following is the Trial Balance of Detergent Company Ltd. as on 31.03.2018. The company
has 20,000 shares of Rs 100 each as registered capital.
Dr Cr
Shares(3,000 Shares of Rs 100each) 3,00,000
Calles in Arrears 16,000
Reserve Fund 2,50,000
Buildings 1,80,000
Fixed Deposits 1,00,000
Wages 30,000
Machinery 89,000
Furniture 80,000
Purchases and Sales 2,10,000 5,25,000
Salary 60,000
Debtors and Creditors 2,20,000 1,50,000
B/R and B/P 61,000 90,000
Directors Fees 20,000
Returns 15,000 20,000
Freight 10,000
Manufacturing Expenses 5,000
Interim Dividend 21,368
Corporate Dividend Tax on Interim Dividend 3,632
Audit Fees 15,000
Profit and Loss Account -- 27,000
Tools 38,000
Preliminary Expenses 60,000
Debentures 1,00,000
Interest on Debentures 14,000
Investments 2,50,000
Goodwill 52,000
Insurance and Taxes 20,000
Printing and Stationery 15,000
Cash and Bank Balances 12,000
15,62,000 15,62,000
Adjustments:
a. Directors proposed a total dividend of 25% on Paid up share capital
b. Write off 25% of preliminary expenses and 10% of goodwill
c. Depreciate buildings by 2% and furniture by 5%
d. Transfer to reserve fund Rs 60,000
e. Insurance prepaid Rs 1,500
f. Closing Stock Rs 80,000
Solution
Detergent Company Ltd
Statement of Profit and Loss for the year ending 31-03-2018
Note
Particulars Amount
No
(I) Revenue from Operations 12 510000
(II) Other Income -
(III) Total revenue 510000
(IV) Expenses:
(a) Material Consumed
(b) Purchase of stock in trade 13 190000
(c) Changes in Inventories (Finished
goods, work-in-progress & stock-in-
trade) 14 -15000
(d) Employees benefit expenses 15 90000
(e) Finance Cost 14000
(f) Depreciation and Amortization Exp 16 12800
(g) Other Expenses 17 98500
Total Expenses 390300
(V) Profit before Tax (III-IV) 119700
(VI) Provision for Tax -
(VII) Profit after Tax (V-VI) 119700
Detergent Company Ltd
Balance Sheet as on 31-03-2018
Particulars Note Amount
No. (Rs.)
I.EQUITY AND LIABILITIES
1 Shareholders’ Funds:
(a) Share Capital 1 284000
(b) Reserves and surplus 2 325700
(c) Money received against share warrants
2 Share Application Money pending
allotment:
3 Non - Current Liabilities:
(a) Long-term borrowings 3 200000
(b) Deferred Tax Liabilities (Net)
(c) Other Long Term Liabilities
(d) Long-term provisions
4 Current Liabilities:
(a) Short-term borrowings
(b) Trade payables 4 240000
(c) Other current liabilities
(d) Short-term provisions 5 46000
TOTAL [1 +2+3+4] 1095700
II.ASSETS
1 Non-Current Assets:
(a) Fixed Assets
(i) Tangible Assets 6 341400
(ii) Intangible Assets 7 46800
(b) Non-Current Investments 250000
(c) Long Term Loans &Advances
(d) Other Non-Current Assets 8 45000
2 Current Assets:
(a) Current investments
(b) Inventories 09 118000
(c) Trade receivables 10 281000
(d) Cash and cash equivalents 12000
(e) Short-term loans and advances -
(f) Other current assets 11 1500
TOTAL [1 + 2] 1095700
Note 1
Share Capital
3000 shares of Rs 100 each 300000
Less: calls in arrears 16000
284000
Note 2
Reserves and Surplus
Reserve fund (Opening) 250000
Add: Current Year Transfer from P and L 60000
Total Reserves 310000
Surplus 15700
325700
Note 3
Long-term borrowings
Fixed Deposits 100000
Debentures 100000
200000
Note 4
Trade payables
Creditors 150000
90000
240000
Note 5
Short term Provisions
Proposed Dividend (71000 – 25000) 46000
46000
Note 6
Tangible Assets
Buildings 180000 3600 176400
Machinery 89000 89000
Furniture 80000 4000 76000
341400
Note 7
Intangible Assets
Goodwill 52000 5200 46800
46800
Note 8
Other Non Current assets
Preliminary Exp (60000 – 15000) 45000
45000
Note 9
Inventories
Closing Stock 80000
Tools 38000
118000
Note 10
Trade receivables
Debtors 220000
Bills Receivable 61000
281000
Note 11
Other current assets
Prepaid Insurance 1500
1500
Note 12
Revenue from operations
Sales 525000
Less : Returns 15000
510000
Note 13
Purchase of stock in trade
Purchases 210000
Less Returns 20000
190000
Note 14
Changes in Inventories
Opening Stock 65000
Less: losing Stock 80000
-15000
Note 15
Employees benefit expenses
Wages 30000
Salaries 60000
90000
Note 16
Depreciation and Amortisation
Building 2% on 180000 3600
Furniture 5 % on 80000 4000
Goodwill written off 10 % on 52000 5200
12800
Note 17
Other Expenses
Directors Fess 20000
Freight 10000
Manufacturing Exp 5000
Audit Fees 15000
Insurance & Taxes (20000 – 1500) 18500
Preliminary Exp written off 15000
Printing & Stationery 15000
98500
Appropriation of Profits
Opening balance of Profit and Loss a/c 27000
Net Profit 119700
Total 146700
Less: Appropriation of Profits
Interim Dividend (21368+3632) 25000
Proposed Dividend (71000-25000) 46000
Transfer to Reserve 60000
Balance 15700
The following balances are extracted from the books of Anbu Trading Co. Ltd as at 31st March
2018.
Particulars Debit Credit
Share Capital:
30000 Equity shares of Rs 10 each 300000
2000 Preference Shares of Rs 10 each 20000
Stock on 01 - 04 - 2017 204000
Purchases and Sales 880000 1320000
General trade Expenses 7200
Returns 15200
Wages 48000
Salaries 74800
Travelling Exp 12800
Advertisement 6200
Rent 19600
Discount 8800
Bank Interest 3400
Bad debts 10000
Buildings 700000
Furniture 72000
Debtors and Creditors 180000 122000
Loans (secured ) 400000
Cash in hand 5600
Reserve fund 92000
Preliminary Exp 44000
Profit and Loss a/c 20000
2282800 2282800
Additional Information
a. Provide a provision of Rs 54000 for taxation
b. Proposed equity dividend is at 10%
c. Transfer Rs 4000 to reserve fund
d. Stock as on 31st March 201d was valued at Rs 160000
e. Charge 10 % depreciation on furniture and building
f. Outstanding wages and salaries amounted to Rs 6400 and 8000 respectively
Prepare statement of Profit and Loss and Balance sheet for the company.
Ashoka Manufacturing Company ltd was registered with a nominal capital of Rs 600000 in
equity shares of Rs 10 each. The following is the list of balances extracted from its books of
accounts on 31st March 2010
Furniture 7200 Frieght and carriage 13115
Calls in arrears 7500 Salaries 14500
Plant and Machines 330000 Director's fess 5725
Business Premises 300000 Bad debts 2110
Interim dividend paid 37500 Debenture interest paid 18000
Stock (1.4,2009) 75000 Subscribed called up and paid up capital 400000
Sundrry Debtors 87000 12% Debentures 300000
Goodwill 25000 Profit and Loss A/C 14500
Cash in hand 250 Bills Payable 38000
Cash at bank 30900 Sundry Creditora 59000
Purchases 185000 Sales 415000
Preliminary expenses 5000 General Reserves 25000
Wages 84865 Bad Debts Reserve 3500
Advertising 10000 General Expenses 6835
The following adjustments are to be made
1. Depreciate plant and machine at the rate of 5%, Business premises by 2% write off Rs
1200 on furniture
2. Write off Rs 1000 from Preliminary Expenses
3. Provide for half year debenture interest
4. The reserve for bad debts on 31 March 2010 should be equal to 1% on sales
5. Director fee is outstanding to the extent of Rs275 and salaries Rs 500
6. Goods to the value of Rs 1500 are distributed as free samples during this year. But no
entry in this regard was made.
Prepare Profit and loss account, profit and loss appropriation account and balance sheet
(GP Rs 171520, NP Rs 68725 Surplus Rs 39350 B/S Rs 879000)
PROBLEMS FOR PRACTICE
Problem No.1
You are given the following extracts of ledger balances taken from Abhinav Co. Ltd., for the
year ending 31 March, 2018. Prepare P & L A/c as per schedule III of the companies Act.
Particulars Rs.
Salary 40,000
Selling expenses 18,750
Interest on loan (Debit) 17,500
Closing stock 7,75,000
Purchases 2,42,500
Wages 51,000
Manufacturing expenses 18,000
Sales 5,25,500
Sales returns 7,500
Opening stock 2,75,000
Audit fees 20,000
Interest on debentures 12,000
Depreciation on furniture 13,000
Machinery 2,00,000
Furniture 1,00,000
Discount on issue of shares written off 2,000
Problem No.2
You are given the following extracts of ledger balances taken from Ashirvad Co. Ltd.,for the
year ending 31 March, 2015. Prepare P & L A/c as per revised schedule III of the companies
Act.
Particulars Rs.
Sales 4,25,000
Purchases 3,00,000
Bonus to workers 27,500
Discount received 3,150
Opening stock 91,500
Discount allowed 4,200
Insurance 3,040
consumables 2,600
Trade marks 8,000
Repairs 6,950
Interest on debenture 8,500
Depreciation machinery 7,200
Machinery 80,000
Rent from sub-let 36,000
Loss by fire 4,700
Wages 65,000
Problem No. 3
Following ledger balances are taken from the books of Navbharat Trading Co. for the year
ending 31/3/2013. Prepare P & L A/c as per revised schedule III
Particulars Rs.
Profit on sale of furniture 58,780
Cash purchases 2,58,120
Credit purchases 1,02,560
Sales 5,36,000
Returns outward 15,050
Royalty paid 36,000
Salesman's commission 24,000
Bad debts 2,540
Opening stock of finished 1,03,000
Opening stock of work-in-process 2,58,000
Rentals 26,000
Closing stock of work-in-process 32,500
Interest on Bank overdraft 14,580
Share transfer fees 11,200
Question No. 1
From the following trial balance of Vishal Ltd., prepare the Balance Sheet of the company as on
31st March 2018 as per Schedule III of the Companies Act.
Debit Rs. Credit Rs.
Advances to employees 3,00,000 Equity Share Capital 52,00,000
Cash at Bank 3,14,320 Capital Reserve 60,000
Furniture & Fixture 7,50,000 Loan from SBI 8,00,000
Premises 41,09,940 Provision for Employees Welfare Fund 6,00,000
Patents 10,00,000 Proposed Dividend 1,64,000
Discount on issue of 25,000 Short term loan from bank 4,90,200
Shares (unwritten off)
Trade Receivables 3,66,240 Unpaid dividend 64,800

Advance Tax 50,000 Profit & Loss A/c 42,980
8% Govt. Bonds 3,36,000 Bills Payable 85,100
Stock in trade 3,55,600 Sundry Creditors 1,00,020
76,07,100 76,07,100
Question No. 2
From the following Ledger balances of Varun Ltd., prepare the Balance Sheet of the company as
on 31st March 2018 as per Schedule III of the Companies Act.
Particulars Rs. Particulars Rs.
Plant & machinery 6,00,000 Immovable property 10,00,000
8% Debenture 8,00,000 Public deposit 5,00,000
Employee’s provident Fund 1,30,000 Provision for taxation 1,80,000
Securities premium 80,000 Drafts on hand 5,00,000
Cash at bank 34,000 Bills Receivable 2,40,000
24000 fully paid equity shares of 12,00,000 Brokerage on issue of 1,10,000
Rs.100 each Rs. 50 called up shares
Sundry Creditors 1,16,000 Bank overdraft 1,50,000
Loan to Manager 70,000 Security Deposit 1,24,000
Deposits with ICICI Bank (5 years) 1,98,000 Trade marks 1,80,000
Prepaid insurance 1,00,000
Question No. 3
From the following ledger balances of Regal Limited as on 31 st March 2018, you are required
to prepare the Balance Sheet as on 31st March 2018 as per Revised schedule III of the Indian
Companies Act.
Particulars Rs Particulars Rs
Office Equipment 4,80,600 General Reserve 4,15,000
9% Debentures in APCO Ltd, 2,45,000 Creditors for Goods 1,68,500
Loose Tools 1,63,000 Creditors for expenses 36,000
Plant & machinery 18,00,000 Cash Credit 75,000
Computer Software 83,250 Mortgage loan 3,10,000
Debtors for goods 1,90,000 8%Preference share capital 5,50,000
Advertisement (unwritten off) 30,000 Equity Share Capital 15,00,000

Stores & Spares 1,00,200 Staff Welfare Fund 85,000
Interest accrued on investment 51,000 Provision for Taxation 26,550
Cash at Bank 23,000
Question No 4
Prepare balance sheet of Darshan Ltd., in the prescribed proforma as on 31st March 2018 from
the following Trial balance.
Trial Balance as on 31st March 2018
Leasehold property 16,00,000
Bank balance 1,05,000 Share Capital 20,65,000
Plant & Machinery 9,00,000 Staff Provident fund 8,00,000
Goodwill 3,00,000 Capita redemption reserve 2,20,000
Investment in a subsidiary Co. 11,50,000 General reserve 1,90,000
P & L A/c 70,000 Deposits from public 9,00,000
Stock of finished goods 1,20,000 Accounts payable 2,10,000
Accounts receivable 2,40,000 Short Term loan from SBI 1,78,000
Preliminary Expenses 39,000 Unclaimed dividend 6,000
Underwriting commission 45,000
45,69,000 45,69,000
Question No.5
From the following ledger balances of Sunshine Co. Ltd., prepare the Balance Sheet of the
company as on 31st March 2018 as per Schedule VI of the Companies Act.
Equity Share Capital 26,00,000 Advances to employees 1,50,000
Discount on issue of
General Reserves 30,000 debentures(unwritten off) 12,500
12% Debenture 4,00,000 Tools and equipment 3,75,000
Land & Buildings 15,54,970 Gratuity Fund 3,00,000
Goodwill 10,00,000 Debtors 1,38,520
Bank Overdraft 2,45,100 Cash at Bank 1,57,160
Proposed Dividend 82,000 Stores & Spares 1,77,800
Prepaid insurance 25,000 Profit & Loss A/c (credit) 21,490
Mutual Fund 1,68,000 Bills Receivable 44,600
Interest payable 32,400 Sundry Creditors 92,560
Question No. 6
The following Trial Balance has been extracted from the books of Agro India Ltd. On
31.03.2018
Plant & Machinery 9,00,000 Sinking Fund 1,00,000
Stock of raw material 1,75,000 Sundry Creditors 1,00,000
Live stock 4,30,000 Equity Share capital 15,00,000
Loan to director 1,35,000 15% Debentures 25,000
IFCI Bonds 2,00,000 Outstanding salary 10,000
Profit & Loss A/c 10,000 Proposed dividend 2,00,000
Patents 3,74,000 Revaluation Reserve 1,65,000
shares 25,000 Mortgage Loan 2,54,000
Interest Accrued 1,05,000
23,54,000 23,54,000
Prepare the Balance sheet of the company as per schedule III of the Companies Act 2013.
Question No. 7
From the following Ledger balances of Mahan LTD., prepare a Balance Sheet of the company as
on 31st March 2018 as per Schedule III of the Companies Act 2013.
Furniture & fixtures 5,00,000 Free hold property 32,00,000

Public Issue of 7% bonds 15,00,000 8% Government bonds 8,00,000
Provident Fund 4,60,000 Provision for taxation 1,40,000
General Reserve 5,40,000 Cash in hand 5,00,000
10% Preference share capital 15,00,000 Acceptances received 7,20,000
Equity share capital 26,00,000 Discount on issue of shares 1,30,000
Outstanding printing & stationery 86,000 Bank overdraft 4,50,000
Payment due to suppliers 9,00,000 Loan to Managing director 3,72,000
Trade Investment 3,24,000 Goodwill 5,40,000
Interest accrued on investment 48,000 Cash at bank 10,42,000
Question No. 8
From the following Ledger balances of PREMIER CO. LTD., prepare a Balance Sheet of the
company as on 31st March 2018 as per Schedule III of the Companies Act, 2013.
Plant & machinery 3,00,000 Premises 5,00,000

6% Debenture 4,00,000 Fixed Deposits with Banks 2,50,000
Provision for workmen compensation 65,000 Provision for taxation 90,000
General Reserves 40,000 Loan from Bank of India 2,50,000

Cash in hand 17,000 Debentures (unwritten off) 55,000
Equity Share capital 6,00,000 Bills Receivable 1,20,000
Sundry creditors 58,000 Bank overdraft 75,000
Advance salary to staff 35,000 Security deposits 62,000
Shares of Reliance Co. Ltd. 99,000 Goodwill 90,000
Commission receivable 50,000
Question No. 9
You are given the following information from the books of Suraj Co. Ltd., as on 31 st March
2018.
Suraj Co. Ltd
Depreciation on premises 18,000 Sales 12,40,000

Materials Consumed 8,00,000 Equity Share Capital 8,00,000
Opening Stock 40,000 Outstanding wages 16,000
Outstanding wages 6,000
Salaries 1,14,000
Bad debts 3,800
Interest on Loan 16,000
Conveyance 4,000
Insurance 16,200
Sales Returns 40,000
Provision for Tax 60,000
Machinery 6,00,000
P. F. Contribution 86,000
Premises 1,60,000
Computer 40,000
20,56,00 20,56,000
0
Additional information:
Closing stock was valued at Rs.1, 10,000.
Question No. 10
You are given the following extracts of ledger balances taken from Bihar Co. Ltd., for the year
ending 31st March 2018. Prepare a statement of P & L as per revised schedule III.
Particulars Rs
Share Capital 102000
Excise Duty 8000
Provision for tax 10000
Depreciation on Machinery 3300
Sundry expenses 7000
Rent 4000
Salaries 7500
Materials consumed 90000
Machinery 25000
Directors remuneration 20000
Factory expenses 2500
Sales 455000
Returns inward 5000
Purchases 2,35,000
Opening stock 182000
Wages 30000
Bank loan 40000
Interest on Bank loan 14000
Interest on Investment 15000
Rent received 13000
Motive power 12000
Transport Charges 10700
Question No. 11
You are given the following extracts of ledger balances taken from Chanakya co. ltd. for the year
ending 31st March 2018. Prepare a statement of P & L A/C as per revised schedule III.
Particulars Rs
Opening stock of finished goods 1,90,500
Cost of material consumed 2,92,000
Interest on debentures paid 16,250
Cash sales 2,66,000
Provision for bad debts 8,200
Delivery Expenses 7,200
Question No. 12
Following ledger balances are t aken from Virupaksh Ltd., for the year ending 31/3/2018,
Prepare P & L Account in vertical form with major heads.
Particulars Rs
Material consumed 3,15,000
Wages 74,000
Coal & Coke 87,500
Live stock 1,00,600
Sales 10,95,000
Bad debts 16,570
Royalty received 18,300
Bank loan 4,00,000
Interest on loan 60,000
Question No. 13
You are given the following extracts of ledger balances taken from Abhinav Co. Ltd., for the
year ending 31 March, 2018. Prepare P & L A/c as per schedule III of the companies Act.
Particulars Rs
Salary 40,000
Purchases 2,42,500
Wages 51,000
Sales 5,25,500
Sales returns 7,500
Audit fees 20,000
Machinery 2,00,000
Furniture 1,00,000
Question No. 14
You are given the following extracts of ledger balances taken from Ashirvad Co. Ltd., for the
Act.
Particulars Rs.
Sales 4,25,000
Purchases 3,00,000
Opening stock 91,500
Insurance 3,040
Consumables 2,600
Trademarks 8,000
Repairs 6,950
Machinery 80,000
Loss by fire 4,700
Wages 65,000
Question No. 15
Following ledger balances are taken from the books of Navbharat Trading Co. for the year
ending 31/3/2018. Prepare P & L A/c as per revised schedule III
Particulars Rs
Profit on sale of furniture 58,780
Sales 5,36,000
Returns outward 15,050
Royalty paid 36,000
Salesman’s commission 24,000
Bad debts 2,540
Rentals 26,000
Closing stock of work-in-process 32,500
Interest on Bank overdraft 14,580
Share transfer fees 11,200
Exercise 1
From the following information extracted from the books of XY Ltd., prepare a Balance Sheet of
the company as at 31st March, 2018 as per Schedule-III of the Indian Companies Act 2013.
Particulars Amount
Long-Term Borrowings 500
Trade Payables 30
Share Capital 400
Reserve and surplus 90
Fixed assets (tangible) 800
Inventories 20
Trade receivables 80
Cash and cash equivalents 120
Exercise 2
Exercise 3
The following is the Trial Balance of Bharat Company Ltd., as on 31.03.2018
Particulars Dr (Rs) Cr(Rs)
Paid-up Capital - 1,00,000
Reserve Fund - 17,000
Provided Fund - 3,000
Goodwill 15,000 -
Machinery 25,000 -
Live Stock 5,000 -
Buildings 37,000 -
8% Mortgage Loans - 30,000
Sundry Debtors 45,000 -
Sundry Creditors - 16,000
Opening Stock 46,000 -
B/R and B/P 4,000 5,490
Advance payment of Income Tax 4,000 -
Cash at Bank 11,000 -
Purchase of Raw materials 88,000 -
Sales - 1,83,700
Returns 2,400 1,000
Discount 2,000 1,000
Investments 8,000 -
Manufacturing Wages 32,000 -
Carriage Inwards 1,000 -
Factory Expenses 14,000 -
Office Salary 6,500 -
Office Furniture 5,000 -
Preliminary Expenses 5,000 -
Bad debts 1,500 -
Provident fund contribution 500 -
Directors fees 1,200 -
Interest on Mortgage Loan 1,200 -
Dividend on Investments - 480
P&L A/C (01.04.2007) - 2,630
Total Rs 3,60,300 3,60,300
Prepare the Prepare Financial Statements for the year ended 31.03.2018 and the Balance sheet as
on that date after considering the following adjustments:
 Closing stock was valued at Rs 38,380
 Write off 50% of preliminary expenses.
 Interest on Mortgage Loan is paid for 6 months up30.09.2017.
 Depreciate machinery @10%, Buildings@5% and office furniture@6%.
 Transfer Rs 2,000 to Reserve fund.
Exercise 4
The following is the Trial Balance of Chaitra Ltd as at 31-03-2018.
Particulars Dr (Rs) Cr (Rs)
Equity Share Capital 3,00,000
12% Preference Share Capital 2,00,000
Reserve Fund 1,50,000
Buildings 5,00,000
10% Debentures 2,00,000
Plant & Machinery 2,00,000
Purchases and Sales 2,50,000 6,00,000
Salary 60,000
Debtors & Creditors 2,30,000 1,75,000
Bills 80,000 90,000
Director Fees 20,000
Bad debts 5,000
Returns 15,000 20,000
Wages 15,000
Profit& Loss A/C on 01,04,2007 60,000
Loose tools 60,000
Goodwill 80,000
Discount on issue of shares 20,000
Cash & Bank Balances 33,000
12% Investments(01.04.2007) 2,00,000
Interest on Investments 18,000
18,13,000 18,13,000
Adjustments:
Closing Stock is valued at Rs 1,40,000.
Outstanding wages Rs 2,500.
Write off 10% discount on issue of shares.
Debenture interest is outstanding for the whole year.
Building and Plant & Machinery to be depreciated by 5% and 10% respectively
Transfer Rs 25,000 to reserve.
The directors propose 15% dividend to equity shareholders
Prepare the financial statements of the company
Exercise 5
The following is the Trial Balance of Mangalore Trading Co. Ltd as at 31st March 2018.
Dr ( Rs) Cr( Rs)
Share Capital 80,000
8,000 equity shares of Rs 10 each -
Stock on 01.04.2017 51,000
Purchases & Sales 2,20,000 3,30,000
Returns 3,800 -
Trade Expenses 1,800 -
Wages 12,000 -
Salaries 18,700 -
Traveling Expenses 3,200 -
Advertising 1,550 -
Rent & Taxes 4,900 -
Discount - 2,200
Bank Interest 850
Bad Debts 2,500
Freehold Premises 95,000
Plant& Machinery 98,000
Sundry Debtors & Creditors 45,000 55,500
Secured Loan -- 75,000
Cash 1,400
Reserve Fund - 23,500
Preliminary Expenses 11,000 -
P& L a/c ( 01.04.2017) 5,000
5,70,700 5,70,700
Adjustments:
Provide Rs 25,000 for taxation.
Dividend at 10% on Equity shares to be provided.
Transfer RS 10,000 Reserve Fund
Closing stock was values at Rs 32,000
Write off preliminary Expenses 10%
Salary outstanding Rs 300
Exercise 6
The following is the Trial Balance of Smart Co. Ltd as at 31st March 2018
Dr. ( Rs) Cr. ( Rs)
Share Capital
10% Preference Shares - 10,000
Equity shares 49,000
Share Premium - 2,500
Secured Loan - 7,800
Unclaimed Dividend - 1,000
P & L Appropriation a/c ( 01.04.2017) - 13,300
Loan to Director 5,000 -
Directors Fees 3,000 -
Audit Fees 2,000 -
Debentures - 10,000
Stock on 01.04.2012 6,000
Purchases & Sales 72,000 98,000
Discounts 2,200 4,400
Rent 6,000 -
Salaries 12,000 -
Miscellaneous Expenses 500 --
Dividend for the year 2016-17(including CDT) 4,900 -
Bank Interest 3,900 -
Plant& Machinery 25,000 -
Sundry Debtors & Creditors 28,000 -
Cash 25,500 -
1,96,000 1,96,000
Adjustments
i. Transfer Rs 10,000 to Reserve Fund
ii. Closing stock was valued at Rs 12,000
iii. Depreciate Machinery by 10%
iv. Commission earned but not received is Rs 10,000
Prepare the Final Accounts of the Company.
Exercise 7
The following are the ledger balance of the Krishna Trading co. Ltd. As on 31-12-2017
Ordinary capital
(authorized Rs. 1,00,000 in Rs 10 /- per share)
Called up (Rs. 5 / share called up and Paid up) 50,000
Trade debtors 6,000
Calls in arrears 2,000
Sales 25,420
Land & building 6,000
Reserve for bad debts 300
Stock on 1st January 8,000
Trade creditors 6,364
Plant & machinery 18,500
Wages 1,283
Investments 2,000
P&L A/C 1st January 1,640
Interest on investment 75
Cash at bank 7,275
Salaries 1,430
Directors salary 1,000
Bad debts 225
Gas & water 501
Rates & insurance 150
Goodwill 10,500
Manufacturing expenses. 1,600
Director fee’s 300
Dividend on shares 2,250
Trade expanses 120
Purchases 14,210
Preliminary expanses 500
Return outwards 730
Discount (dr.) 265
Return inwards 420
Adjustments
a. The stock on 31st December 2011 was valued at Rs. 8100/-
b. Depreciate plan and machinery at 10%
c. Write off one-half of the preliminary expenses
d. Make reserve for bad debts up to Rs. 400/-
e. Transfer Rs. 1000/- to general reserve
Prepare P&L A/C & Balance Sheet.
Exercise 8
The following Trial Balance has been extracted from the books of Agro India Ltd. on
31.03.2018
Plant & Machinery 9,00,000 Sinking Fund 1,00,000
Stock of raw material 1,75,000 Sundry Creditors 1,00,000
Live stock 4,30,000 Equity Share capital 15,00,000
Loan to director 1,35,000 15% Debentures 25,000
IFCI Bonds 2,00,000 Outstanding salary 10,000
Profit & Loss A/c 10,000 Proposed dividend 2,00,000
Patents 3,74,000 Revaluation Reserve 1,65,000
Discount on issue of shares 25,000 Mortgage Loan 2,54,000
Interest Accrued 1,05,000
23,54,000 23,54,000
Prepare the Balance sheet of the company as per schedule III of the Companies Act 2013.
Exercise 9
Prepare Balance sheet of Samarth Ltd. in a prescribed proforma as on 31-03-2018 from the
following trial balance.
Trial balance as on 31st March 2018
Lease hold premises 13,00,000 Debenture redemption reserve 3,75,000
Plant & Equipment 9,45,000 Provision for warranties 1,35,000
Book debts 3,44,000 Short Term loan from Ambica Ltd. 2,65,000
Bank balance 1,45,000 Profit & loss A/c 2,69,000
Advance Income tax 85,000 12% Debentures 4,55,000
Licenses & Franchise 2,25,000 Commission payable 44,000
Redeemable pref. shares in 32000 equity shares of Rs. 100
Sonata Ltd. 6,30,000 each, Rs.50 called up 16,00,000
Cheques on hand 95000 Provision for tax 46,000
Rent paid in advance 36000 Interest accrued 54,000
Mortgage loan from IDBI 5,62,000
38,05,000 38,05,000
Exercise 10
From the following Ledger balances of Mahan LTD., prepare a Balance Sheet of the
company as on 31st March 2014 as per Schedule III of the Companies Act 2013.
Furniture & fixtures 5,00,000 Free hold property 32,00,000

Public Issue of 7% bonds 15,00,000 8% Government bonds 8,00,000
Provident Fund 4,60,000 Provision for taxation 1,40,000
General Reserve 5,40,000 Cash in hand 5,00,000
10% Preference share capital 15,00,000 Acceptances received 7,20,000
Equity share capital 26,00,000 shares 1,30,000
Outstanding printing &
stationery 86,000 Bank overdraft 4,50,000
Loan to Managing
Payment due to suppliers 9,00,000 director 3,72,000
Trade Investment 3,24,000 Goodwill 5,40,000
Interest accrued on investment 48,000 Cash at bank 10,42,000
Exercise 11
From the following Ledger balances of Premier Co. Ltd., prepare a Balance Sheet of the
company as on 31st March 2015 as per Schedule III of the Companies Act, 2013:
Plant & machinery 3,00,000 Premises 5,00,000
6% Debenture 4,00,000 Fixed Deposits with Banks 2,50,000
Provision for workmen, 65,000 Provision for taxation 90,000
compensation
General Reserves 40,000 Loan from Bank of India 2,50,000
Cash in hand 17,000 Discount on issue of 55,000
Debentures (unwritten off)
Equity Share capital 6,00,000 Bills Receivable 1,20,000

Sundry creditors 58,000 Bank overdraft 75,000
Advance salary to staff 35,000 Security deposits 62,000
Shares of Reliance Co. Ltd. 99,000 Goodwill 90,000
Commission receivable 50,000
Exercise 12
From the following ledger balances of Akshar Co. Ltd., prepare a Balance Sheet of the company
as on 31st March 2015 as per Schedule III of the Companies Act, 2013.
Equity Share Capital 26,00,000 Advances to employees 1,50,000
General Reserves 30,000 Discount on issue of 12,500
debentures(unwritten off)
12% Debenture 4,00,000 Tools and equipment 3,75,000
Land & Buildings 15,54,970 Gratuity Fund 3,00,000
Goodwill 10,00,000 Debtors 1,38,520
Bank Overdraft 2,45,100 Cash at Bank 1,57,160
Proposed Dividend 82,000 Stores & Spares 1,77,800
Prepaid insurance 25,000 Profit & Loss A/c [Cr.] 21,490
Mutual Fund 1,68,000 Bills Receivable 44,600
Interest payable 32,400 Sundry Creditors 92,560
Exercise 13
You are given the following extracts of ledger balances taken from Muthu Co. Ltd., for the year
ending 31 March, 2018. Prepare P & L A/c as per schedule III of the companies Act.
Particulars Rs.
Salary 1,20,000
Purchases 7,27,500
Wages 1,53,000
Sales 15,76,500
Audit fees 60,000
Machinery 6,00,000
Furniture 3,00,000
Exercise 14
You are given the following extracts of ledger balances taken from Bashirvad Co. Ltd., for the
Act.
Particulars Rs.
Sales 8,50,000
Purchases 6,00,000
Insurance 6,080
consumables 5,200
Trade marks 16,000
Repairs 13,900
Machinery 1,60,000
Loss by fire 9,400
Wages 1,30,000
Exercise 15
Following ledger balances are taken from the books of Digital Bharath Trading Co. Ltd. for the
year ending 31/03/2018. Prepare P & L A/c as per revised schedule III
Particulars RS.
Profit on sale of furniture 5,87,080
Sales 53,60,000
Returns outward 1,50,500
Royalty paid 3,60,000
Salesman’s commission 2,40,000
Bad debts 25,400
Rentals 2,60,000
Closing stock of work-in-process 3,25,000
Interest on Bank overdraft 1,45,800
Share transfer fees 1,12,000
Provision for tax 5,30,000
COMPANY FINAL ACCOUNTS
PROBLEM NO 1
Aditya Ltd. Mysore, a limited company, registered with an authorized capital of Rs. 30,00,000 in
equity shares of Rs. 10 each is in to a manufacturing business. The following is the list of
balances extracted from its books on 31.032018
Materials consumed 9,00,000 Sundry debtors 4,36,000
Purchases of stock in trade 25,000 General expenses 84,175
Wages 4,24,000 Stock on 1.4.18 3,75,000
Manufacturing expenses 65,575 Cash in hand 1,00,000
Salaries 70,000 Goodwill 28,750
Bad debts 10,550 Cash at bank 1,99,500
Director’s fees 31,125 Subscribed and fully called up capital 20,00,000
Debenture interest paid 45,000 Profit & Loss A/c 72,500
Preliminary expenses 25,000 6% Debentures 15,00,000
Calls-in-arrears 37,500 Sundry creditors 2,90,000
Plant & Machinery 15,00,000 Bills payable 1,67,500
Premises 16,50,000 Sales 20,75,000
Interim dividend paid 1,87,000 General reserve 1,25,000
Furniture and fittings 35,000
You are required to prepare Trading and Profit & Loss account for the year ended 31.03.18
and the Balance Sheet as on the date, after making the following adjustments.
a. Depreciate Plant & Machinery by 10%.
b. Provide half years interest on debentures and also write off Rs.2,500 from preliminary
expenses.
c. Make provision for bad and doubtful debts of Rs.4,250 on sundry debtors.
d. Stock on 31st March 2018 was Rs.4,55,000.
PROBLEM NO 2
From the under mentioned Trial balance of Balu Brothers Ltd., prepare a statement of profit &
loss for the ended March 31, 2018 and the balance sheet as at that date:
Debit balances Rs. Credit balances Rs.
Opening stock 30,000 Equity share capital 1,00,000
Rent and taxes 6,000 1,000 shares of Rs. 100 each
Purchases 60,900 5% debentures 25,000
Wages 55,200 Sales 1,75,000
Discount 1,500 Creditors 8,000
Fuel 2,570 Bank overdraft 12,000
Building 70,000 Discount 2,200
61
Carriage inwards 1,175 Transfer fees 100
Debtors 20,000 Return outwards 100
Goodwill 28,000
Plant & machinery 25,000
Loose tools 6,000
Advertisement 3,000
Bad debts 1,030
Debenture interest (for half year) 625
Miscellaneous expenses 3,000
Insurance 1,000
Cash 3,000
3,22,400 3,22,400
a. The authorized capital of the company is Rs.2,00,000.
b. Stock on December 31, 1996 is Rs.2,00,000.
c. Depreciation plant & machinery at 9% and Revalue tools at Rs.4,100
d. Allow 2.5% discount on debtors and 2% as bad debts reserve.
PROBLEM NO 3
The following is the trial balance of ABC Company Ltd., as on 31-03-2018. Prepare profit &
loss account and balance sheet.
Particulars Dr Cr
Authorized capital : 50,000 shares of Rs. 10 each 5,00,000
Subscribed capital : 10,000 shares of Rs. 10 each 1,00,000
Calls-in-arrears
Land 6,400
Building 10,000
Machinery 25,000
Furniture 15,000
Carriage inward 3,200
Wages 2,300
Salary 21,400
Bad debts reserve (1.4.17) 4,600 1,400
Sales 80,000
Sales returns
Bank charges 1,700
Coal 100
Rates and taxes 700
Purchases 800
Purchase returns 50,000 3,400
Bills receivable
Sundry debtors 1,900
Sundry creditors 42,800 13,200
Stock on 1-4-17
Fire insurance 25,000
62
Cash at bank 400
Cash in hand 13,000
Securities premium 2,500 6,000
General reserve 24,000
2,28,000 2,28,000
a. Charge depreciation on buildings at 2.5%, on machinery at 10% and on furniture
at 10%.
b. Make a reserve of 5% on debtors for bad debts.
c. Carry forward the following unexpired amount: Fire insurance Rs.120.
d. Provide for liabilities: Wages Rs.3,200, Salaries Rs.500 and Rates Rs.200.
e. The value of stock on 31-03-2018 was Rs.30,000.
PROBLEM NO 4
The following are the balances of B.B. Lal Co., Ltd., as on 31st March 2018.
Cash and bank balances 2,03,250 Sales 20,75,000
Purchases 9,25,000 General reserve 1,25,000
Preliminary expenses 25,000 Creditors 2,00,000
Wages 4,89,900 Bills payable 1,85,000
General expenses 34,175 Share capital 20,00,000
Salaries 1,01,125 12% Debentures 15,00,000
Bad debts 10,550 Profit & loss A/c 1,31,250
Debenture interest paid 90,000 Provision for bad debts 17,500
Premises 15,36,000
Plant and machinery 16,50,000
Stock (1-1-98) 3,75,000
Debtors 4,35,000
Goodwill 1,25,000
Calls-in-arrears 37,500
Interim dividend paid 1,96,250
------------ -----------------
62,33,750 62,33,750
You are required to prepare profit & loss A/c for the year ended 31 st March 2018 and balance
sheet as on that date after taking into account the following adjustments:
a. Stock on 31st March 2018 was valued at Rs.4,75,000.
b. Provide depreciation @ 15% on plant & machinery.
c. Create 5% provision for doubtful debts on debtors; Write off Rs.2,500 from preliminary
expenses;
d. Half year’s debenture interest outstanding; Create provision for taxation @ 50%.
e. A claim of Rs.30,000 for workmen’s compensation is being disputed by the company.
PROBLEM NO 5
The following trial balance of Nallis Ltd as at 31st March 2018 is given to you. You are required
to prepare profit & loss account for the year ended 31.03.2018 and balance sheet as on that date.
Stock (1.4.2017) 80,000 8,000 equity shares of
63
Bank 17,600 Rs. 100 each, Rs. 75 paid 6,00,000
Patents 60,000 6% debentures 2,00,000
Calls in arrears 20,000 Sundry creditors 1,00,000
Returns inwards 30,000 General reserve 80,000
Purchases 7,72,000 Sales 10,00,000
Wages 1,08,000 Returns outward 20,000
Insurance prepaid 400 P&L a/c Cr. 12,000
Bills receivable 30,000
Discount on issue of debentures 10,000
Plant and machinery 4,00,000
Land and buildings 3,00,000
Insurance 4,000
Establishment expenses 60,000
20,12,000 20,12,000
st
a. The value of stock on 31 March 2018 was Rs. 74,000
b. Outstanding wages totaled Rs. 10,000
c. A provision 5% is to be credited on sundry debtors for doubtful debts
d. Depreciate patents @ 10% and Plant and machinery @ 7 ½ % and on land and buildings
@ 4%.
PROBLEM NO 6
The following is the Trial Balance of the Yonis Co., Ltd., as at 31 st December 2017, with an
authorized capital of Rs.6,00,000 in 60,000 shares of Rs.10 each of which 40,000 shares have
been issued and fully paid up. You are required to prepare the final accounts of the company.
Debit balance Rs. Credit balance Rs.
Stock (1-1-17) 75,000 Sales 4,15,000
Cash in hand 750 Subscribed and fully paid up capital 4,00,000
Cash at bank 47,400 6% debentures 3,00,000
Freehold premises 3,00,000 P & L A/c (1.1.17) 14,500
Plant & machinery 3,30,000 Sundry creditors 88,000
Furniture & fixtures 7,200 Provision for bad debts 3,500
Purchases 1,85,000
Wages 84,864
Carriage inward 10,668
Bad debts 2,110
Debenture interest paid 9,000
Directors’ fees 5,724
Salaries 20,874
Repairs & renewals 4,300
Preliminary expenses 5,000
Fuel and power 2,450
Interim dividend paid on 1.10.17 37,500
64
12,21,00 12,21,000
0
a. Stock on 31-12-2017was Rs.94,000.
b. Write off Rs.1,000 from preliminary expenses.
c. Create a provision for bad debts @ 5% on sundry debtors.
d. Provide 10% depreciation on the cost of plant and machinery.
e. During the year a machine whose book value was nil was sold for Rs.14,000. The amount
is included in sales.
f. Included in plant & machinery is newly acquired machine (on 30 th June) costing Rs.60,000.
The cost of the remaining machinery is Rs.4,00,000.
PROBLEM NO 7
From the following balances as on 31st December 2017 of a limited company, prepare profit &
loss A/c for the year ended and balance sheet as on that date:
Stock 1-1-17 33,380 Subscribed and paid up capital 50,000
Discounts 6,788 Sales 1,46,268
Land 22,000 Sundry receipts 200
Plant & machinery 10,700 Creditors 39,532
Purchases 91,888 Provision for bad debts 5,300
Furniture 2,750 Discounts (Cr) 5,904
Debtors 63,600 Bank overdraft 13,823
P & L A/c (Dr) 4,960 Customer’s deposit 400
Carriage 3,780
Wages 9,016
Bad debts 1,820
Office expenses 10,275
Cash on hand 470
The following adjustments have to be made:
a. Stock on 31-12-2017 Rs.35,460
b. Depreciation on plant & machinery at 10% and furniture at 6%.
c. Provide 10% for bad and doubtful debts.
d. Customer’s deposit has been forfeited. Proposed dividend at 10%.
e. Provision for taxation Rs.7,500.
f. The managing director is entitled to 10% commission on net profits before charging such
commission.
PROBLEM NO 8
The following is the Trial balance of Chennai Limited as on 31 st March, 2018. Prepare P&L A/c
and balance Sheet as on that date.
Land & Building 7,00,000 Share Capital(20,000 ordinary
Preliminary expenses 20,000 share of Rs.100 Rs.50 paid up) 10,00,000
Rent, rates & insurance 14,000 General Reserve 1,50,000
Bank 1,20,000 8% Debentures 5,00,000
Salaries 40,000 Bank loan 20,000
65
Cash 10,000 Sundry Creditors 80,000
Printing 6,000 Securities Premium 50,000
Closing stock as on 31.3.2018 6,40,000 Debentures Redemption reserve 2,00,000
Furniture 40,000 Gross profit 5,20,000
Trade investment 30,000 P&L A/c Balance 30,000
Debenture interest 20,000
Advance payment of Tax 40,000
Sundry debtors 3,50,000
Director fees 10,000
Machinery 5,00,000
Interest on bank loan 10,000
25,50,00 25,50,000
0
a. Outstanding expenses: Audit fees Rs.10,000; Interest on debentures for six months
Rs.20,000 ; Provision for income Tax Rs.1,20,000.
b. Machinery worth of Rs.2,00,000 was purchased and installed on 1 st October 1992.Provide
depreciation on land & building @ 2.5% and on machinery @ 10% per annum.
c. Prepaid insurance Rs.4,000; Transfer Rs.50,000 to debenture redemption reserve and
Rs.20,000 to general reserve.
d. Write off 50% of preliminary expenses.;
e. Directors propose 8% dividend on share capital.
f. Authorized capital consists of 50,000 equity shares of Rs.100 each.
**********************
References:
 http://www.accountingnotes.net/debentures/debenture-types-top-13-types-of-
debenture/8076
 http://principles-of-accounting1.blogspot.com/p/joint-stock.html
 https://www.accountingtools.com/articles/what-are-the-types-of-preference-shares.html
 https://www.sapling.com/8156262/preference-shares-vs-ordinary-shares

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ACCOUNTING FOR CORPORATES (BBBH233) - 001 Module 1 - 1573561029351

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CHAPTER 1

FINAL ACCOUNTS OF JOINT STOCK COMPANIES

MEANING OF JOINT STOCK COMPANY

DEFINITION OF JOINT STOCK COMPANY

FEATURES OF JOINT STOCK COMPANY

ADVANTAGES OF JOINT STOCK COMPANIES

DISADVANTAGES OF JOINT STOCK COMPANIES

CAPITAL STRUCTURE OF JOINT STOCK COMPANIES

Shares with differential rights

Deferred Stock or Founders Shares

Cumulative and Non Cumulative

Participating and Non Participating

Redeemable and Irredeemable

Convertible and Non Convertible

Preference Shares with Callable Options

Simple or Naked or unsecured debenture

Secured or Mortgaged debentures

Non convertible debenture

Zero coupon debentures

First debenture and Second debenture

Floating interest rate debenture

Inflation adjusted debenture

Deep discount debenture

Other Securities issued by JSC

Secured Premium Note

SHARE CAPITAL OF JOINT STOCK COMPANY

Paid –Up Capital:

FINANCIAL STATEMENTS OF JSCs

Financial statements are prepared …..

Requisites of Financial Statements

(2) In case of all other companies

Compliance with Accounting Standards

Format of Balance Sheet and Statement of Profit and Loss

PART-II – PROFIT & LOSS STATEMENT

Statement of Profit and Loss

(III)Total revenue 12,00,000

(VII) Profit Loss after Tax (V-VI) 1,14,000

(III) Total revenue 4,50,000

(VII)Profit Loss after Tax (V-VI) 16,700

4. Employees benefit expenses

4 Employees benefit expenses

5 Depreciation & Amortisation

2 Depreciation & Amortisation

Trade Receivables 3,66,240 Unpaid dividend 64,800

Office Equipment 4,80,600 General Reserve 4,15,000

9% Debentures in APCO Ltd, 2,45,000 Creditors for Goods 1,68,500

Loose Tools 1,63,000 Creditors for expenses 36,000

Plant & machinery 18,00,000 Cash Credit 75,000

Computer Software 83,250 Mortgage loan 3,10,000

Debtors for goods 1,90,000 8%Preference share capital 5,50,000

Advertisement (unwritten off) 30,000 Equity Share Capital 15,00,000

Interest accrued on investment 51,000 Provision for Taxation 26,550

Cash at Bank 23,000

Furniture & fixtures 5,00,000 Free hold property 32,00,000

Plant & machinery 3,00,000 Premises 5,00,000

General Reserves 40,000 Loan from Bank of India 2,50,000

Depreciation on premises 18,000 Sales 12,40,000

Furniture & fixtures 5,00,000 Free hold property 32,00,000

Equity Share capital 6,00,000 Bills Receivable 1,20,000

COMPANY FINAL ACCOUNTS

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