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CA Intermediate · Advanced Accounting

Financial Statements of Companies: CA Intermediate Advanced Accounting

Financial Statements of Companies covers how a company presents its Balance Sheet and Statement of Profit and Loss in the format of Schedule III of the Companies Act, 2013. To solve a question, read the adjustments, work out each line item in notes, then place figures under the correct heads and sub-heads.

What this chapter covers

This chapter teaches you to present a company's accounts in the prescribed format. Schedule III to the Companies Act, 2013 sets out the Balance Sheet and the Statement of Profit and Loss, with heads, sub-heads and notes. Division I applies to companies whose financial statements follow the Companies (Accounting Standards) Rules, 2021, that is, non-Ind AS companies. Division II applies to Ind AS companies. Division I is the main format you practise at CA Intermediate, so you must know what goes where under it. You should also know the basic presentation differences under Division II (Ind AS), as the syllabus covers them. You must also know which items need separate disclosure.

The chapter has two sides. One side is presentation: share capital, reserves and surplus, borrowings, fixed assets, investments, current assets and current liabilities. The other side is computation: adjustments for items such as depreciation, provisions, tax, interest and managerial remuneration. Dividends proposed or declared after the balance sheet date (but before the financial statements are approved) are not recognised as a liability at that date. They are only 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. Managerial remuneration needs a net profit worked out under Section 198 of the Companies Act, 2013, which is different from accounting profit.

This chapter links to much of the rest of Paper 1. Share capital, debentures and amalgamation questions all end in a Balance Sheet in this format. Accounting Standards on depreciation, inventories, revenue, fixed assets and contingencies feed into the figures. In the paper, this chapter can be tested as a working-based question or as MCQs on classification of items.

This chapter is one of the most practical parts of Advanced Accounting. A full final accounts question tests your format, your classification and your adjustments in one answer. Clear workings also let the examiner see your method, which is good exam practice. The same skill is reused in other company accounting chapters, so time spent here pays back across the paper. The format is fixed, and with practice you can produce a clean answer fast. Classification rules also suit MCQs, where a quick, correct head decision gets you the mark, and there is no negative marking.

Financial Statements of Companies: topics in the order to study them

  1. 1Company Final Accounts Format under Schedule IIIStart here. Every later topic is a head or note inside this format, so learn the skeleton first.
  2. 2Statement of Profit and Loss and Items of Income and ExpenseIt is the simpler statement and teaches you how revenue, other income, expenses and tax are grouped.
  3. 3Share Capital, Reserves and Surplus DisclosuresThis is the first block of the equity and liabilities side and links to the profit figure from the previous topic.
  4. 4Borrowings, Debentures and Other Liabilities PresentationIt completes the liabilities side, including the split of current and non-current items.
  5. 5Property, Plant and Equipment, Intangible Assets, Investments and Current Assets PresentationWith liabilities done, you can finish the assets side and see how the Balance Sheet balances.
  6. 6Managerial Remuneration and Net Profit under Section 198It is a separate computation. Study it after the statements so you understand the profit figures it starts from.
  7. 7Preparation of Company Financial Statements with AdjustmentsDo this last. It combines every earlier topic in full-length questions with adjustments.

How to prepare Financial Statements of Companies

Learn the format first, then practise questions in a fixed routine. Speed comes from a repeatable method, not from memory alone.

  1. Write out the Balance Sheet and Statement of Profit and Loss formats from memory until you can do it without looking. Include main heads and sub-heads.
  2. For each head, list a few typical items and where they go. Keep a short list of confusing items, such as unclaimed dividend, calls in advance and security deposits.
  3. Practise the Section 198 net profit computation as a separate fixed layout, so you can do it quickly in any question.
  4. In every full question, read all adjustments first. Mark each one with the statement and head it affects before you start writing.
  5. Build workings as notes in the answer: share capital, reserves, borrowings, fixed assets, and so on. Then transfer note totals to the statements.
  6. Check the Balance Sheet totals tally. If not, recheck adjustments that affect two places, such as tax, depreciation and dividend.
  7. For MCQs, practise classification sets: pick the correct head for an item, or the correct figure after one adjustment.

Common mistakes in Financial Statements of Companies

  • Showing items under the wrong head or wrong side of the Balance Sheet.

    Fix: Keep a list of tricky items with their correct head and revise it often. Practise short classification drills.

  • Treating current and non-current items the same.

    Fix: For every asset or liability, ask when it is due or realised and tag it before placing it.

  • Using accounting profit instead of Section 198 net profit for managerial remuneration.

    Fix: Use a separate Section 198 working. Section 198 has its own method, but you usually start from the profit before tax as per the Statement of Profit and Loss. Then adjust for the items Section 198 specifies. Section 198 net profit does not deduct income-tax, and it excludes capital profits and similar items listed in Section 198(3) and (4). Take depreciation as per Section 123, not simply the book figure.

  • Missing the effect of an adjustment on both statements.

    Fix: Next to each adjustment, write both effects before posting. Tick them off after posting.

  • Omitting workings and notes in the written answer.

    Fix: Show workings as notes with clear headings. Clear workings let the examiner see your method and give credit for correct steps even if a final figure is wrong.

  • Not checking that the Balance Sheet tallies.

    Fix: Keep two minutes to total both sides. If they differ, recheck tax, depreciation and dividend adjustments first.

Last-day revision: Financial Statements of Companies

  • 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.

Financial Statements of Companies practice questions

Financial Statements of Companies in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Financial Statements of Companies: frequently asked questions

Which Schedule III division applies in CA Intermediate?

Division I is the main format you practise. It is for companies whose financial statements follow the Companies (Accounting Standards) Rules, 2021, that is, non-Ind AS companies. Division II is for Ind AS companies; you should also know its basic presentation differences as per the syllabus. Learn the Division I format thoroughly and apply it unless the question says otherwise.

Is Section 198 net profit a separate computation?

Yes. It is worked out by the method in Section 198, usually starting from the profit before tax in the Statement of Profit and Loss, with its own additions and deductions. It is not the same as the accounting profit. Use a separate working and then compare remuneration with the permitted limit.

How should I answer a long final accounts question?

Read all adjustments first, prepare workings as notes, then fill the Statement of Profit and Loss and the Balance Sheet. Finish by checking that both sides of the Balance Sheet agree.

Can MCQs come from this chapter?

Yes. Expect questions on which head an item belongs to, or what figure appears after an adjustment. There is no negative marking, so always attempt every MCQ.