Financial Statements of a Company

The way in which the various items of Statement of Profit and Loss and the Balance Sheet should be presented is given in schedule VI part I of the Companies Act 1956.

Statement of Profit and Loss

Statement of Profit and Loss is a financial statement that shows the performance of the company over a period of time. It shows the net result of the company i.e., profit earned or loss suffered during the accounting period. It shows revenue from operations, other incomes and expenses incurred in a summarized form. Statement of Profit and Loss is similarly to the Trading and Profit & Loss Account prepared by proprietorship and partnership firms. The only difference is that it is prepared in the form of a statement and not an account.

Balance Sheet

Balance Sheet as prescribed in schedule VI part I of the Companies Act 1956 is broadly divided into two parts:

  1. Equity and Liabilities
  2. Assets

1. Equity and Liabilities

Equity: It is the liability of the company towards its shareholders and is called as ‘Shareholders’ Funds’. It includes Share Capital, Reserves & Surplus and Money Received Against Share Warrents.

Liabilities: It means external liabilities of the company or liabilities towards outsiders. Liabilities have further been divided into (a) Non-current Liabilities and (b) Current Liabilities.

Non-current Liabilities have been defined as liabilities which are not current liabilities. Current liability is that liability which is:

  1. expected to be settled in the company’s normal operating cycle
  2. due to be settled within 12 months after the reporting date i.e., Balance Sheet date
  3. held primarily for the purpose of being traded
  4. there is no unconditional right to defer settlement for at least 12 months after the reporting date

The various items that are presented under the various heads of liabilities are:

  • (a) Long-term Borrowings
    • (i) Debentures
    • (ii) Bonds
    • (iii) Term Loans
    • (iv) Public Deposits
    • (v) Other loans and advances
  • (b) Current Liabilities
    • (i) Short-term borrowings
    • (ii) Trade Payables
    • (iii) Other Current Liabilities
    • (iv) Short-term Provision

2. Assets

Like liabilities, assets are also divided into ‘non-current assets’ and ‘current assets’. Non-current assets have been defined as assets that are not current. Current Assets are those assets which are:

  1. expected to be realized in or intend for sale or consumption in the company’s normal operating cycle
  2. held primarily for the purpose of trading
  3. expected to be realized within 12 months from reporting date i.e., Balance Sheet date
  4. Cash and Cash equivalents unless they are restricted from being exchanged or used to settle a liability for at least 12 months after reporting date i.e., Balance Sheet date.

1. Non-Current Assets are classified into the following five major heading:

  • (a) Fixed Assets
  • (b) Non-Current Investments
  • (c) Deferred Tax Assets
  • (d) Long-term Loans and Advances
  • (e) Other non-current assets

Fixed Assets:

  • (i) Tangible Assets
  • (ii) Intangible Assets
  • (iii) Capital Work-in-Progress
  • (iv) Intangible Assets under Development

Non-Current Investments:

  • (i) Investment in Property
  • (ii) Investment in Equity Investments
  • (iii) Investments in preference shares
  • (iv) Investment in Govt. or Trust Securities
  • (v) Investments in Debentures or Bonds
  • (vi) Investments in Mutual Funds
  • (vii) Investments in Partnership Firms
  • (viii) Other Non-Current Investments

Long Term Loans and Advances:

  • (i) Capital Advances
  • (ii) Security Deposits
  • (iii) Other Loans and Advances

2. Current Assets are shown under the following six heads:

  • (i) Current Investments
  • (ii) Inventories
  • (iii) Trade Receivables
  • (iv) Cash and Cash Equivalents
  • (v) Short term loans and advances
  • (vi) Other Current Assets