Schedule III Balance Sheet Format: Equity and Liabilities

Understand Format of Balance Sheet: Equity and Liabilities

Key rules to remember

Order of heads

Shareholders' funds → Share application money pending allotment → Non-current liabilities → Current liabilities

Keep this order in the answer. Marks are given for correct grouping.

Shareholders' funds

Share capital + Reserves and surplus + Money received against share warrants

A debit balance of the Statement of Profit and Loss reduces reserves and surplus.

Paid-up capital

Subscribed and fully paid-up capital + Subscribed but not fully paid-up capital (called-up less calls in arrears) + forfeited shares amount

Calls in arrears are deducted from called-up capital in the note.

Total equity and liabilities

Shareholders' funds + Share application money pending allotment + Non-current liabilities + Current liabilities

This must equal total assets.

Capital redemption reserve on buy-back (section 69)

Transfer = Nominal value of shares bought back out of free reserves or securities premium

The rule applies where the buy-back is made out of free reserves or securities premium.

Current maturity

Instalment of long-term loan due within 12 months → Other current liabilities

The balance stays under long-term borrowings.

Deferred tax

Deferred tax liability (net) → Non-current liabilities always

Ind AS 1, para 56: never classified as current.

How to solve Format of Balance Sheet: Equity and Liabilities questions

1. 1List every credit balance and every liability or provision from the data. Ignore assets for now.
2. 2Tag each item to a head: shareholders' funds, share application money, non-current or current.
3. 3For share capital, show equity and preference separately. Deduct calls in arrears and add forfeited shares account if asked.
4. 4Build reserves and surplus: add capital reserve, securities premium, general reserve and the profit balance. Deduct any debit balance of profit and loss.
5. 5Split loans by due date. Move instalments due within twelve months to other current liabilities and keep the rest under long-term borrowings.
6. 6Put trade payables, provisions (tax, dividend, employee) and outstanding expenses in the correct current sub-head.
7. 7Total each head, then the side. Check it equals total assets if the question gives them.
8. 8Add short notes for share capital and reserves, since these earn step marks.

Quickest way: Four-bucket sort

Common mistakes in Format of Balance Sheet: Equity and Liabilities

• Showing a debit balance of profit and loss as an asset

  Students treat a debit balance as an asset by habit.

  Fix: Show it as a negative figure under reserves and surplus.

• Putting the whole long-term loan under non-current liabilities

  Students ignore the repayment schedule.

  Fix: Move the instalment due within twelve months to other current liabilities.

• Showing deferred tax liability as current

  Students link tax with the current year.

  Fix: Deferred tax liability (net) is always non-current. Ind AS 1, para 56 bars classifying it as current.

• Ignoring calls in arrears

  Students report called-up capital as paid-up.

  Fix: Deduct calls in arrears from called-up capital to get paid-up capital.

• Mixing equity and preference capital

  Students total all capital in one line.

  Fix: Show them as separate classes, as section 43 treats them as two kinds of share capital.

• Treating proposed dividend as a liability under Ind AS without checking declaration

  Students copy old Indian GAAP practice.

  Fix: Read the question's framework. Show dividend as a provision only where the facts and the framework require it. Declared dividend is a current liability.

Worked examples