Accounts of Companies: formula sheet

Key formulas

Section 128(1): how books are kept

Registered office + accrual basis + double entry + true and fair view (including branches)

These are the core conditions. Books, other relevant papers and the financial statement are all to be kept for every financial year.

Other place in India

Board decision → notice to Registrar within 7 days → full address of the place

The 7 days run from the Board's decision. The notice must be in writing.

Electronic mode

Books and papers may be kept in electronic mode in the prescribed manner

This is a proviso to Section 128(1). The manner is in the rules.

Branch office (Section 128(2))

Proper books at branch + periodic summarised returns to registered office = deemed compliance

Applies to branches in India or outside India.

Inspection (Section 128(3))

Any director can inspect during business hours; subsidiary's books only by a person authorised by Board resolution

Foreign-held financial information: copies must be kept and produced for director inspection, subject to conditions.

Preservation period (Section 128(5))

Not less than 8 financial years immediately preceding a financial year, with vouchers

If the company is under 8 years old, keep all preceding years. Longer period if the Central Government directs after an investigation.

Penalty (Section 128(6))

Fine: minimum ₹50,000, maximum ₹5,00,000

Imposed on the managing director, whole-time director in charge of finance, CFO or other person charged by the Board. Imprisonment was removed by an amendment in 2020.

Financial year (Section 2(41))

Year ending 31st March; company incorporated on or after 1 January: ending 31st March of the following year

A different year is possible for certain companies that are subsidiaries or holding companies of a foreign company, with Tribunal approval.

Section 129(1): three tests

True and fair view + compliance with AS notified under Section 133 + Schedule III form

All three must be met. The items must also be in accordance with the accounting standards. Insurance, banking, electricity companies and others with a form under their own Act are outside this sub-section.

Section 129(2): laying

Board lays financial statements for the financial year at every AGM

The duty rests on the Board of Directors.

Section 129(3): consolidation

Company with one or more subsidiaries = standalone statements + consolidated statements (company and all subsidiaries), same form and manner

Both are laid before the AGM. A separate statement of salient features of subsidiaries' statements is attached in the prescribed form.

Section 129(4)

Provisions on preparation, adoption and audit of holding company's statements apply mutatis mutandis to consolidated statements

So consolidated statements are also adopted and audited.

Section 129(5): deviation

Disclose: (1) the deviation, (2) the reasons, (3) the financial effects, if any

Applies where the statements do not comply with the accounting standards.

Section 129(7): penalty

Imprisonment up to 1 year or fine ₹50,000 to ₹5,00,000, or both

Falls on the MD, whole-time director in charge of finance, CFO or other person charged by the Board; if none of them, all directors.

Section 129(6): exemption

Central Government may exempt any class of companies by notification, in public interest

Unconditionally or subject to conditions.

Board approval before signing (s.134(1))

Board approves → authorised signatories sign → sent to auditor for report

Approval comes first. Signing is for submission to the auditor.

Who signs the financial statements (s.134(1))

Chairperson (if authorised by Board) OR two directors, one being MD if any; plus CEO, CFO and company secretary, wherever appointed

In a One Person Company, only one director signs.

Who signs the Board's report (s.134(6))

Chairperson (if authorised by Board); otherwise at least two directors, one being MD; or the director where there is one director

Note the CEO, CFO and CS are not named here. They are named only for the financial statements.

Documents issued with signed financial statements (s.134(7))

Notes + auditor's report + Board's report

A signed copy is issued, circulated or published along with these three.

Filing with Registrar (s.137(1))

Within 30 days of the date of AGM

Includes consolidated statements, if any, and all attached documents.

Filing if AGM not held (s.137(2))

Within 30 days of the last date by which the AGM should have been held, with a statement of facts and reasons

Statements must be duly signed.

Filing by One Person Company (s.137, third proviso)

Within 180 days from the closure of the financial year

The statements are those adopted by its member.

Penalty under s.134(8)

Company: ₹3,00,000. Every officer of the company who is in default: ₹50,000

These are fixed penalty amounts.

Penalty under s.137(3)

Company: ₹10,000 plus ₹100 per day of continuing failure, maximum ₹2,00,000. Officer in default: ₹10,000 plus ₹100 per day after the first, maximum ₹50,000

Officers liable: MD and CFO; if absent, any director charged by Board; if none, all directors.

Attachment of the report

Board's report is attached to statements laid before the company in general meeting – Section 134(3)

The auditor's report is attached to every financial statement – Section 134(2).

Who approves and signs the financial statement

Approved by Board, then signed by chairperson (if authorised by Board) or by two directors, one of whom must be the managing director, if any, plus CEO, CFO and company secretary wherever appointed; in an OPC, by one director – Section 134(1)

Signing is for submission to the auditor for his report. The managing director is needed here only if the company has one.

Who signs the Board's report

Chairperson if authorised by the Board; otherwise at least two directors, one of whom is a managing director; or the director where there is only one director – Section 134(6)

Do not mix this up with the signing of the financial statement in section 134(1). Section 134(1) says the managing director is needed 'if any'. Section 134(6) has no such qualifier in its text.

Directors' Responsibility Statement

Section 134(5): (a) accounting standards followed; (b) policies, prudent judgments, true and fair view; (c) proper accounting records, safeguarding assets, preventing and detecting fraud and other irregularities; (d) going concern; (e) internal financial controls (listed companies); (f) compliance systems

Clause (e) applies to listed companies only. Clauses (a) to (d) and (f) apply to all companies.

One Person Company

Board's report = Board's explanations on every qualification, reservation, adverse remark or disclaimer in the auditor's report – Section 134(4)

Nothing else is required in the OPC report.

Penalty for default

Company: ₹3,00,000. Every officer of the company who is in default: ₹50,000 – Section 134(8)

The company is liable to ₹3,00,000 on default. Each officer who is in default is liable to ₹50,000. Whether a particular officer is in default depends on the facts.

Documents issued with the signed financial statement

Notes, auditors' report and Board's report – Section 134(7)

A signed copy of the financial statement, including consolidated one, is issued with these.

Revision of report

Tribunal approval; any of the three preceding financial years; not more than once in a financial year – Section 131

Reasons for revision must be disclosed in the Board's report of the year in which revision is made.

Applicability (any one)

Net worth ≥ ₹500 crore OR turnover ≥ ₹1,000 crore OR net profit ≥ ₹5 crore in the immediately preceding financial year

Tested on the immediately preceding financial year. One condition is enough.

CSR spend

Minimum CSR spend = 2% × average net profit of the three immediately preceding financial years

Net profit is computed under section 198 and excludes prescribed sums. For a young company, use the immediately preceding years completed.

CSR Committee

3 or more directors, including at least 1 independent director; 2 or more directors if section 149(4) does not require an independent director

If the spend amount does not exceed ₹50 lakh, no Committee is needed and the Board performs its functions.

Unspent amount, ongoing project

Transfer to Unspent CSR Account within 30 days from end of financial year; spend within 3 financial years from transfer; otherwise transfer to Schedule VII Fund within 30 days from completion of the third financial year

The account is opened in any scheduled bank, one for each financial year.

Unspent amount, not ongoing project

Transfer to a Fund specified in Schedule VII within 6 months of expiry of the financial year

The Board report must also state reasons for not spending.

Penalty on company

Lower of (2 × amount required to be transferred) and ₹1 crore

For default under sub-section (5) or (6).

Penalty on officer in default

Lower of (1/10 of amount required to be transferred) and ₹2 lakh

Applies to every officer of the company who is in default.

Excess spend

Excess over the required amount may be set off against requirement of succeeding financial years, as prescribed

The number of years and manner are prescribed by rules.

Sources of dividend (Section 123(1))

Current year profit (after depreciation) OR undistributed past profit (after depreciation) OR both OR Government money under guarantee

Exclude unrealised gains, notional gains, revaluation and fair value changes from profits.

Dividend from accumulated profits

Allowed only from past profits transferred to free reserves, and only as per prescribed rules

Applies when profits of the year are inadequate or absent. Reserves other than free reserves cannot be used.

Set-off condition

Previous losses and unprovided depreciation must be set off against current year profit before declaring dividend

This is the last proviso to Section 123(1).

Interim dividend limit (Section 123(3))

If loss up to the preceding quarter: interim dividend rate ≤ average dividend rate of the immediately preceding 3 financial years

The Board declares interim dividend, not the members.

Deposit of dividend (Section 123(4))

Separate scheduled bank account within 5 days of declaration

Applies to final and interim dividend.

Mode of payment (Section 123(5))

Only to the registered shareholder, or to his order or banker; cash, cheque, warrant or electronic mode

Bonus shares by capitalising profits or reserves are not prohibited.

Unpaid Dividend Account (Section 124(1))

Unpaid or unclaimed for 30 days → transfer within 7 days after those 30 days

Account is opened in a scheduled bank.

Statement of unpaid dividend (Section 124(2))

Within 90 days of transfer, place names, last known addresses and amounts on the company website

Also on any website approved by the Central Government.

Interest on default (Section 124(3))

12% per annum on the amount not transferred, from the date of default

Interest benefits the members in proportion to the amount unpaid to them.

Transfer to IEPF (Section 124(5) and (6))

Money: unpaid 7 years from transfer. Shares: dividend unpaid or unclaimed for 7 consecutive years or more

If dividend is paid or claimed in any year in the 7-year period, the shares are not transferred.

Penalty (Section 124(7))

Company: ₹5,00,000 to ₹25,00,000. Officer in default: ₹1,00,000 to ₹5,00,000

Fine amounts are minimum and maximum.

Section 123(6) bar

Failure to comply with Sections 73 and 74 → no dividend on equity shares while failure continues

Sections 73 and 74 deal with deposits.

Pending transfer (Section 126)

Transfer instrument delivered but not registered → dividend goes to Unpaid Dividend Account, unless registered holder authorises payment to the transferee in writing

Rights shares and bonus shares for those shares are kept in abeyance.

Flow of reporting

Board approves and signs (s.134(1)) → submitted to auditor → auditor's report attached (s.134(2)) → Board's report, answering the auditor's remarks, goes with statements laid (s.134(3)) → laid at AGM (s.129(2))

Approval and signing come first, as section 134(1) says. In practice the Board's report follows the auditor's report because it must comment on it. The Act does not prescribe a sequence for the later steps.

Who signs the financial statements

Chairperson (if authorised by Board) OR two directors (one the MD, if any) + CEO, CFO and company secretary wherever appointed; OPC: one director

Section 134(1). Signing is for submission to the auditor.

Directors' Responsibility Statement points

s.134(5): (a) AS followed, (b) policies and prudent judgments, (c) accounting records and fraud prevention, (d) going concern, (e) IFC (listed company), (f) compliance systems

Clause (e) on IFC applies only to a listed company. Clause (f) applies to all.

Auditor's remarks

Board must give explanations or comments on every qualification, reservation, adverse remark or disclaimer: s.134(3)(f)

Also covers the secretarial auditor's report.

Fraud details

s.134(3)(ca): details of frauds reported by auditors under s.143(12), other than those reportable to the Central Government

Part of the Board's report.

Penalty for default in s.134

Company: ₹3,00,000. Every officer in default: ₹50,000. (s.134(8))

Penalty, not imprisonment.

Penalty for contravening s.129

Imprisonment up to 1 year or fine ₹50,000 to ₹5,00,000, or both (s.129(7))

Falls on the MD, whole-time director in charge of finance, CFO or person charged by the Board, else all directors.

Deviation from AS

Disclose the deviation, the reasons and the financial effects, if any (s.129(5))

Applies when the statements do not comply with accounting standards.

Quick revision

• Financial statements are approved by the Board before signing, then go to the auditor for his report.
• Signing: chairperson if authorised by the Board, or two directors (one a managing director, if any), plus CEO, CFO and company secretary where appointed.
• In a One Person Company, one director signs the financial statements.
• The auditor's report must be attached to every financial statement.
• The Board's report is attached to statements laid before the company in general meeting.
• Board's report includes number of Board meetings, Directors' Responsibility Statement, and the state of the company's affairs.
• Board must explain every qualification, reservation, adverse remark or disclaimer by the auditor and the secretarial auditor.
• The Directors' Responsibility Statement covers accounting standards, policies, records, going concern, and, for listed companies, internal financial controls; it also covers compliance systems.
• Board's report is signed by the chairperson if authorised, otherwise by at least two directors, one a managing director; a single-director company is signed by that director.
• A signed copy of the financial statements goes out with notes, the auditor's report and the Board's report.
• Default under Section 134: company penalty ₹3,00,000; each officer in default ₹50,000.
• A One Person Company's Board's report means only the Board's comments on auditor qualifications.

Common mistakes

• Saying books must always be kept only at the registered office. Fix: Add that the Board can choose another place in India, and the company must file written notice with the Registrar within 7 days of the decision.
• Writing 7 days from the date the books were shifted instead of from the Board decision. Fix: The text says the company files notice within seven days of the decision. Count from the decision.
• Treating notes as separate from financial statements. Fix: Quote the Explanation to Section 129: references to the financial statement include notes annexed to or forming part of it.
• Saying Schedule III applies to all companies including banks and insurers. Fix: State the second proviso to Section 129(1): insurance, banking, electricity companies and classes with a form under their own Act are excluded from that sub-section.
• Saying any two directors can sign the financial statements. Fix: Write: two directors, one of whom must be the managing director, if any. Also add the CEO, CFO and company secretary where appointed.
• Treating the Board's report signatories as the same as the financial statements signatories. Fix: Remember s.134(6) for the Board's report does not name the CEO, CFO or company secretary. It names the authorised chairperson, or at least two directors including the MD, or the sole director.
• Saying the internal financial controls statement in the DRS applies to every company. Fix: Clause (e) of section 134(5) applies to listed companies only. The other clauses apply to all companies.
• Mixing up who signs the financial statement and who signs the Board's report. Fix: Under section 134(1), the financial statement is signed by the chairperson if authorised by the Board, or by two directors, one of whom must be the managing director, if any. The CEO, CFO and company secretary also sign wherever appointed. Under section 134(6), the Board's report is signed by the chairperson if authorised, otherwise by at least two directors, one of whom is a managing director, or by the director where there is one director.
• Thinking all three thresholds must be satisfied. Fix: Remember the word 'or'. Meeting any one of net worth, turnover or net profit limits triggers Section 135.
• Using the current year's profit to compute the 2% spend. Fix: Applicability looks at the immediately preceding financial year. The spend is 2% of the average of the three immediately preceding years.

Exam tips

• Memorise four numbers: 7 days, 8 financial years, ₹50,000 and ₹5,00,000. Many MCQs test only these.
• In written answers, quote the exact words 'accrual basis' and 'double entry system'. They are easy marks.
• When a question mentions a branch, think of Section 128(2) and write 'proper books plus periodic summarised returns'.
• For a subsidiary's books, always mention the Board resolution authorising the person. This is a frequent trap.
• For penalty, name the persons liable first, then give the fine range. Do not mention imprisonment.
• Quote section numbers in written answers: 129(1), 129(3), 129(5), 129(7) and 133. Markers look for them.
• Learn the second proviso to Section 129(1) as a list: insurance, banking, electricity, and classes with a form under their own Act.
• In case studies, ask first: is there a subsidiary, and is there a deviation from AS? These trigger 129(3) and 129(5).