CA Intermediate · Advanced Accounting

Financial Statements of Companies: formula sheet

Full chapter guide

Key formulas

Balance Sheet identity: Equity and Liabilities total = Total Assets; Use this to check your final answer. A mismatch means a misclassified or missed item.
Shareholders' funds: Share capital + Reserves and surplus + Money received against share warrants; Share application money pending allotment is shown separately after Shareholders' funds.
Current asset test: Realised or consumed in operating cycle, OR held for trading, OR realisable within 12 months after the reporting date, OR cash/cash equivalent (unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting date); If none applies, the asset is non-current.
Current liability test: Settled in operating cycle, OR held for trading, OR due within 12 months, OR no unconditional right to defer settlement for 12 months; Otherwise non-current. Current maturities of long-term debt are shown under current liabilities.
Operating cycle: Time between acquiring assets for processing and their realisation in cash or cash equivalents; If it cannot be identified, assume 12 months.
Profit before tax: PBT = Total revenue − Total expenses ± Exceptional items ± Extraordinary items (gains added, losses deducted); Reach PBT in stages. Total revenue − Total expenses gives Profit before exceptional and extraordinary items and tax. Adjust for exceptional items to get Profit before extraordinary items and tax. Then adjust for extraordinary items to get Profit before tax. Exceptional items come before extraordinary items in the statement, and the intermediate profit figures are not the final PBT. Exceptional and extraordinary items can be gains or losses, so add a gain and deduct a loss. Tax expense, current and deferred, is deducted after PBT.
Reserves and surplus heads: Capital reserves; Capital redemption reserve; Securities premium; Debenture redemption reserve; Revaluation reserve; Share options outstanding; Other reserves; Surplus (balance in P&L); A debit balance in surplus is shown as a negative figure.
Total income: Total income = Revenue from operations + Other income; Revenue from operations is shown net of returns and discounts as per the question; GST collected is excluded.
Profit before exceptional items and tax: Total income − Total expenses; Total expenses include finance costs and depreciation.
Profit before tax (PBT): Profit before exceptional items and tax − Exceptional items; An exceptional gain is added instead of deducted. The Exceptional items line is above PBT.
Profit for the period: Profit from continuing operations = PBT − (Current tax + Deferred tax); Profit for the period = Profit from continuing operations + Profit or loss from discontinued operations (net of tax); If there are no discontinued operations, profit for the period equals profit from continuing operations. Deferred tax charge is added to tax expense; a deferred tax credit reduces it.
Changes in inventories: Opening stock of FG, WIP and stock-in-trade − Closing stock; A positive figure is an expense; a negative figure (stock increase) reduces total expenses.
Cost of materials consumed: Opening raw materials + Purchases (net, with carriage inwards) − Closing raw materials; Purchases of trading goods go under purchases of stock-in-trade.
Basic EPS: (Profit after tax − Preference dividend) ÷ Weighted average number of equity shares; Use AS 20; adjust for bonus issue and rights issue.
Paid-up capital: Paid-up capital = Called-up capital − Calls in arrears; Calls in arrears (on the capital portion) are deducted from called-up capital. Calls in advance are not part of share capital. They are generally shown separately as a liability, commonly under other current liabilities.
Capital with forfeited shares: Total shown = Subscribed and fully paid + Subscribed but not fully paid − Calls in arrears + Forfeited shares (amount originally paid up); Forfeited shares not yet reissued are added at the amount originally received.
Calls in advance: Calls in advance → Liability (commonly other current liabilities); Not part of share capital. Disclose it separately in the notes.
Securities premium: Securities premium = (Issue price − Face value) × Number of shares; Premium is credited only when it becomes due (called). Premium that is called but unpaid is a receivable (calls unpaid) and is not deducted from share capital. Only arrears on the capital portion are deducted from called-up capital.
Surplus roll-forward: Closing surplus = Opening balance + Profit for the year − Transfers to reserves − Dividends and other appropriations; A debit balance of the Statement of Profit and Loss is shown as a negative figure under Reserves and surplus.
Reserve note layout: Opening balance + Additions − Deductions = Closing balance; Apply this to each reserve separately, as the notes require.
Long-term borrowing to be shown (non-current): Total long-term borrowing outstanding − Amount repayable within 12 months of reporting date; The deducted part goes to current maturities of long-term debt under other current liabilities.
Current maturities of long-term debt: Instalments or redemption due within 12 months → Other current liabilities; Applies to term loans, debentures and finance lease obligations.
Current liability test: Settled in normal operating cycle OR held primarily for trading OR due within 12 months after the reporting date; If any one condition holds, classify as current. These are the three Division I (non-Ind AS) tests. The 'no unconditional right to defer settlement for at least 12 months' test belongs only to Division II (Ind AS).
Trade payables ageing buckets: Less than 1 year | 1-2 years | 2-3 years | More than 3 years; These are the four age buckets, measured from the due date of payment. The format also has a separate 'Not due' column and lines for unbilled dues. Show MSME, Others, Disputed MSME and Disputed Others separately.
Debenture issued at discount, shown in balance sheet: Show debentures at the redemption (face) amount under long-term borrowings. The unamortised discount is shown under other non-current assets or other current assets, or is written off against securities premium under Section 52 of the Companies Act, 2013; The debentures are not shown net of the discount. If the discount is carried forward as an asset, show the unamortised portion under other non-current assets or other current assets, depending on when it will be written off. Where securities premium is available, the discount may instead be written off against it under Section 52.
Interest on borrowings: Interest accrued and due / Interest accrued but not due → Other current liabilities (separate sub-heads); Do not add it to the principal in the borrowings note.
Current asset test: Current if: operating cycle OR held for trading OR realisable within 12 months OR cash/cash equivalent (unrestricted); Meeting any one condition makes it current. Otherwise it is non-current.
Net carrying amount of fixed assets: Net block = Gross block − Accumulated depreciation − Impairment; Schedule III wants the opening-to-closing reconciliation for each class, not only the closing figure.
Investments classification: Current investment = readily realisable by its nature and intended to be held for not more than one year from the date of investment; all others = non-current investment; This page follows Schedule III Division I (companies following AS). The definitions and the measurement basis come from AS 13: current investments at lower of cost and fair value, long-term investments at cost less diminution other than temporary. Schedule III governs only how they are presented, that is, by nature and as quoted or unquoted. Under Division II (Ind AS), investments are financial assets and follow Ind AS 109.
Inventories valuation: Inventory = Lower of cost and net realisable value; Follows AS 2 under Division I (Ind AS 2 under Division II). Disclose the mode of valuation and the sub-classification.
Net trade receivables: Net = Secured good + Unsecured good + Doubtful − Allowance for doubtful debts; Allowance is shown as a deduction. The secured good, unsecured good and doubtful classification applies to both long-term and short-term trade receivables. Long-term trade receivables (including those on deferred credit terms) are non-current. Show them in the non-current section as the Division I note requires, separately from current trade receivables. If the question has no secured receivables, that component is nil. Provision for discount on debtors is not part of this.
Cash and cash equivalents: AS 3 cash equivalents = Cash + Bank balances + Cheques/drafts in hand + Short-term highly liquid investments (original maturity up to 3 months); Deposits with original maturity over 3 months and margin money are not AS 3 cash equivalents, so the cash flow statement figure excludes them. The Division I note on Cash and cash equivalents includes balances with banks, with margin money and earmarked balances disclosed separately. How you show deposits over 3 months in the balance sheet depends on the question's requirement. This is a presentation versus AS 3 point, so state your assumption. 'Bank balances other than cash and cash equivalents' is a Division II head.
Net profit under Section 198 (working format): Profit before tax as per Statement of Profit and Loss + managerial remuneration charged + capital losses charged − profits of a capital nature credited; If you start from profit after tax, first add back the tax provision. Income tax is not a deduction in this computation. Capital losses are not deductible, so add them back if they were charged.
Overall ceiling for managerial remuneration: Maximum total remuneration = 11% × net profit; Applies to a public company, for all directors, managing director, whole-time directors and manager together. Paying more than 11% is allowed only by a special resolution in general meeting, and it must comply with Schedule V. Private companies are not subject to this limit.
Managing director, whole-time directors and manager: If there is one such person: up to 5% of net profit. If there is more than one: up to 10% of net profit together; These limits apply to the MD, WTD and manager only, not to directors generally. All remuneration must stay within the 11% overall ceiling. Paying above the 5% or 10% limit is allowed only with approval by a special resolution in general meeting.
Directors who are neither MD nor WTD: If company has MD, WTD or manager: 1% of net profit. If it has none of them: 3% of net profit; Sitting fees for attending meetings are treated separately. Follow the question's instruction on how to treat them. These amounts also fall within the 11% overall ceiling. Paying above the 1% or 3% limit is allowed only with approval by a special resolution in general meeting.
Items not credited in computing net profit: Premium on shares or debentures; profit on sale of forfeited shares; profits of a capital nature, including profit from sale of an undertaking or any part of it; profit on sale of immovable property or fixed assets, only where it is of a capital nature; Remove these from profit if they were credited in the Statement of Profit and Loss. If the company deals in such property or assets, the profit is a business profit and is not removed. Government bounties and subsidies stay in net profit unless the Central Government directs otherwise, so no adjustment is needed for them.
Inadequate profit or no profit: Remuneration payable as per Schedule V; Learn the effective-capital slabs from the latest ICAI material. Do not guess them.
Profit before tax: Gross profit − operating expenses − depreciation − finance costs − bad debts written off − additional provisions + other income; Charge every adjustment that is an expense before you compute tax. Tax is computed on the profit after these charges, unless the question gives a tax figure.
Profit after tax: Profit before tax − provision for tax; Use the tax rate given in the question. Do not compute the tax rate yourself.
Closing balance of Statement of Profit and Loss: Opening balance + profit after tax − transfer to reserves − interim dividend paid − final dividend of the previous year approved in this year; This figure goes under Reserves and Surplus. A negative balance is shown as a deduction.
Provision for doubtful debts charge: Required provision − existing provision; Charge the difference to profit. If required is lower, the difference is written back as income. Apply the percentage to debtors after deducting any bad debts written off.
Depreciation, straight line: (Cost − residual value) ÷ useful life; For a part-year addition, charge depreciation from the date of use. Follow the rate or method given in the question.
Proposed dividend rule: Dividend = rate ÷ 100 × paid-up equity share capital; Apply the rate to paid-up capital, not authorised capital. Deduct a dividend from surplus only in the year shareholders approve it. A dividend proposed after the Balance Sheet date is not provided for. Disclose it in the notes.

Quick revision

Schedule III has a Balance Sheet and a Statement of Profit and Loss; each uses heads, sub-heads and notes.
Classify assets and liabilities as current or non-current using the operating cycle and the 12-month test.
Show share capital as authorised, issued, subscribed and paid-up, with calls in arrears shown as a deduction.
Reserves and surplus include securities premium, capital reserve, general reserve and the surplus balance in the Statement of Profit and Loss.
Debentures and loans are shown under borrowings; the part due within 12 months is a current maturity.
Dividends proposed or declared after the balance sheet date (but before approval of the financial statements) are not recognised as a liability at that date and are disclosed in the notes (AS 4). Dividends declared on or before the balance sheet date, such as an interim dividend, are recognised in that year.
Tax expense, current and deferred, appears in the Statement of Profit and Loss.
Property, Plant and Equipment and Intangible Assets are the Schedule III heads; capital work-in-progress and intangible assets under development are shown separately.
Investments are classified as non-current or current, each with its own head.
Net profit under Section 198 is not the accounting profit; follow its adjustments.
Managerial remuneration is checked against the limits of the Companies Act, 2013 after the net profit is found.
Always cross-check that total equity and liabilities equal total assets.

Common mistakes

Showing proposed dividend as a current liability by default. Fix: Under AS 4 (revised), dividend proposed or declared after the Balance Sheet date is not recognised as a liability and is disclosed in the notes. Only dividend declared on or before the Balance Sheet date is a liability.
Classifying all long-term borrowings as non-current. Fix: Show the instalment due within 12 months as 'current maturities of long-term debt' under other current liabilities.
Showing interest on loans under other expenses. Fix: Show interest and other borrowing costs under finance costs.
Putting profit on sale of a fixed asset or investment in revenue from operations. Fix: Show it under other income, since it is not the core business activity.
Adding calls in advance to paid-up capital. Fix: Calls in advance are not yet due. Show them as a liability under other current liabilities, and mention them in the notes.
Forgetting to deduct calls in arrears from called-up capital, or deducting them from authorised capital. Fix: Deduct arrears only from called-up capital to reach paid-up capital.
Showing the whole term loan under long-term borrowings when an instalment falls due within 12 months. Fix: Always read the repayment schedule. Move the next 12 months' instalment to other current liabilities as current maturities.
Showing current maturities of long-term debt under short-term borrowings. Fix: Short-term borrowings are loans taken for short periods. Current maturities of long-term debt go under other current liabilities.
Treating a deposit with the bank as cash equivalent regardless of maturity. Fix: Include only deposits with original maturity of up to 3 months in cash equivalents. Show other bank deposits separately, and mark those with more than 12 months' maturity as such.
Showing capital advances under current assets. Fix: Capital advances are given for acquiring non-current assets, so show them under long-term loans and advances.

Exam tips

Practise drawing the full Schedule III skeleton from memory. A clean skeleton secures format marks quickly.
In MCQs, look for the 12-month and operating cycle clues in the wording. They decide current versus non-current.
Always write the sub-head, such as Long-term borrowings or Short-term provisions, not just the main head.
Read adjustments carefully for dividend, tax and depreciation. They change the classification and the figures.
State any assumption, such as a 12-month operating cycle, in one line so you earn the marks.
Practise the format until you can write the skeleton in under a minute. Examiners give marks for correct heads and order.
Read each adjustment twice. Closing stock, depreciation and tax adjustments are the usual traps.
In MCQs, decide the head first (revenue, other income, finance cost, exceptional) and then choose the number.