Corporate Accounting and Auditing · Statement of Profit and Loss and Balance Sheet (Schedule III of Companies Act, 2013)

Notes to Accounts and Disclosure Requirements under Schedule III

Updated 10 October 2026 · Fact-checked

Notes to accounts are the explanatory notes that form part of a company's financial statements under Schedule III. They break down balance sheet and profit and loss figures and add disclosures such as share capital reconciliation, holders of more than 5% shares, ratios and additional regulatory information. Answer by listing each disclosure with its figures in a clear note format.

Understand Notes to Accounts and Disclosure Requirements

A balance sheet and a statement of profit and loss show only headline figures. A line such as "Share Capital ₹50,00,000" tells a reader very little. Notes to accounts give the detail behind each line, so that users can understand it.

Section 129(1) of the Companies Act, 2013 requires financial statements to give a true and fair view, to comply with the accounting standards notified under section 133, and to be in the form provided in Schedule III. The Explanation to section 129 says a reference to the financial statement includes any notes annexed to or forming part of it. So notes are not optional extras. They are part of the statements, and the auditor's report covers them.

Schedule III asks for specific disclosures. For share capital you show the authorised, issued, subscribed and paid-up numbers and amounts, a reconciliation of shares outstanding at the start and end of the year, the rights, preferences and restrictions attached to each class, and the shares held by each shareholder holding more than 5% of the shares. Other notes cover reserves and surplus, borrowings, trade payables ageing, property, plant and equipment, investments, inventories, trade receivables ageing, and so on.

Schedule III also requires additional regulatory information. This includes the ratios with the reason for any change of more than 25% from the preceding year, title deeds of immovable property, details of benami property, wilful defaulter status, relationship with struck-off companies, and similar items. Treat these as a checklist. Learn the heads and the usual layouts.

The Board's report is a separate document. Section 134(3) lists its contents. Where a disclosure is already in the financial statements, the first proviso to section 134(3) lets the Board's report refer to it instead of repeating it.

Key rules to remember

Share capital reconciliation: Shares at end = Shares at start + Shares issued during the year − Shares bought back or forfeited or cancelled; Show it separately for number of shares and for amount, class by class (equity, preference).
Shareholding percentage: % held = Shares held by the shareholder ÷ Total shares issued of that class × 100; Disclose each holder with more than 5% of the shares, with number of shares held. Use the class of shares as the denominator.
Current ratio: Current assets ÷ Current liabilities; Schedule III ratio. Give the numerator and denominator reasons when the change is more than 25%.
Debt-equity ratio: Total debt ÷ Shareholder's equity; Total debt means borrowings plus lease liabilities. Equity is total equity.
Return on equity ratio: (Net profit after tax − Preference dividend) ÷ Average shareholder's equity; Use the average of opening and closing equity.
Percentage change in a ratio: % change = (Current year ratio − Previous year ratio) ÷ Previous year ratio × 100; Explain the reason where the change exceeds 25% as compared to the preceding year.
Trade receivables turnover ratio: Net credit sales ÷ Average trade receivables; Average = (Opening + Closing) ÷ 2.

How to solve Notes to Accounts and Disclosure Requirements questions

Use this method for any question asking you to prepare notes or state the disclosures.

1Read the question and mark which line item or note is asked: share capital, borrowings, ratios, or a general disclosure list.
2Pull the figures from the trial balance or data given. Group them by the Schedule III heads.
3For share capital, write authorised, issued, subscribed and paid-up figures first. State the number of shares and the face value.
4Prepare the reconciliation: opening shares, additions, deductions, closing shares. Check it ties to the balance sheet figure.
5List each shareholder holding more than 5%, with shares held and percentage, using the total shares of that class.
6For ratios, write the formula, substitute the numerator and denominator, compute both years, and work out the percentage change. Give a reason if the change exceeds 25%.
7Cross-check every note total with the face of the balance sheet or the statement of profit and loss.
8Add one line on the legal basis if the question asks why: Schedule III and section 129(1) require it.

Quickest way: Checklist method for note questions

When to use it: Use when you have limited time and the question asks for a list of disclosures or a single note.

Write the heading of the note and the year-end date in the first line.
Draw two columns for current year and previous year only if figures for both are given.
Put the totals first, then the breakup. Tick the total against the balance sheet.
For 5% holders, compute the percentage in one line each and keep only those above 5%.
For ratios, write formula, working and answer on one line each, then flag any change above 25%.

Common mistakes in Notes to Accounts and Disclosure Requirements

Including shareholders who hold exactly 5% or less in the 5% disclosure list.
Students read the rule as 5% or more.
Fix: Disclose only holders with more than 5% of the shares of that class. Compare the percentage carefully.
Using total share capital of all classes as the denominator for the percentage held.
Equity and preference shares are mixed up.
Fix: Work class by class. Percentage of equity shares uses equity shares only.
Reconciliation that does not tie to the balance sheet.
Bonus, buy-back or forfeiture during the year is forgotten.
Fix: Rewrite the movements in order: opening, issued, bonus, buy-back. Check closing number × face value equals the paid-up amount.
Using closing balances instead of averages in ratios that need averages.
Students memorise one formula for all ratios.
Fix: Check the definition. Return on equity and receivables turnover use average balances.
Skipping the reason for a change of more than 25% in a ratio.
Students stop after calculating the ratio.
Fix: Always compute the percentage change and write a one-line reason where it exceeds 25%.
Treating notes as optional and leaving them out of a financial statement answer.
Time pressure.
Fix: Notes form part of the financial statements as the Explanation to section 129 says. Give at least the main notes, with figures.

Worked examples

Example 1

At 31 March 2027 Kaveri Industries Ltd has 10,00,000 equity shares of ₹10 each fully paid. During the year it issued 1,00,000 shares and had 9,00,000 shares at the start. Shares held: Rohan Mehta 60,000; Sunita Rao 4,50,000; Anand Textiles Pvt Ltd 1,00,000; others 3,90,000. Prepare the share capital reconciliation and identify shareholders holding more than 5%.

Show the solution

Reconciliation (number): opening 9,00,000 + issued 1,00,000 = closing 10,00,000.
Reconciliation (amount): opening ₹90,00,000 + issued ₹10,00,000 = closing ₹1,00,00,000.
Total shares held check: 60,000 + 4,50,000 + 1,00,000 + 3,90,000 = 10,00,000, which matches.
Rohan Mehta: 60,000 ÷ 10,00,000 × 100 = 6%, which is more than 5%.
Sunita Rao: 4,50,000 ÷ 10,00,000 × 100 = 45%, more than 5%.
Anand Textiles Pvt Ltd: 1,00,000 ÷ 10,00,000 × 100 = 10%, more than 5%.
The remaining 3,90,000 shares are held by others; individual holders are not given, so they are not disclosed.

Answer: Closing equity shares are 10,00,000 of ₹10 each, ₹1,00,00,000. Shareholders to disclose: Rohan Mehta 6%, Sunita Rao 45%, Anand Textiles Pvt Ltd 10%.

Example 2

Aditi Ltd has current assets of ₹30,00,000 and current liabilities of ₹15,00,000 in the current year. In the previous year the figures were ₹24,00,000 and ₹16,00,000. Compute the current ratio for both years, the percentage change, and state whether a reason must be given.

Show the solution

Current year ratio = 30,00,000 ÷ 15,00,000 = 2.00.
Previous year ratio = 24,00,000 ÷ 16,00,000 = 1.50.
Change = (2.00 − 1.50) ÷ 1.50 × 100 = 0.50 ÷ 1.50 × 100 = 33.33%.
33.33% is more than 25%, so an explanation is required.

Answer: Current ratio is 2.00 against 1.50 last year, an increase of 33.33%. As the change exceeds 25%, give a reason, for example higher current assets together with lower current liabilities due to repayment of short-term dues.

Exam tips

Learn the share capital note layout as a fixed format: authorised, issued, subscribed and paid-up, reconciliation, rights, 5% holders. It is a favourite for written questions.
In the MCQ section, watch the exact words. More than 5% is different from 5% or more, and the 25% change rule applies to ratios.
Show formula, substitution and answer for every ratio. Step marks are awarded even when the final figure is wrong.
Tie each note to the balance sheet total. Examiners look for consistency between notes and the face of the statements.
Keep Board's report items separate from notes. Section 134(3) lists the Board's report, while Schedule III governs notes.

Practice questions from Statement of Profit and Loss and Balance Sheet (Schedule III of Companies Act, 2013)

Notes to Accounts and Disclosure Requirements in other exams

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

Notes to Accounts and Disclosure Requirements: frequently asked questions

Are notes to accounts part of the financial statements?

Yes. The Explanation to section 129 of the Companies Act, 2013 says a reference to the financial statement includes any notes annexed to or forming part of it. So they are covered by the auditor's report and must be signed along with the statements.

Which shareholders must be disclosed under the 5% rule?

Those holding more than 5% of the shares of a class. Give the name, the number of shares held and the percentage. Holders at exactly 5% or below are not required to be shown.

When must a ratio change be explained?

Where a ratio changes by more than 25% compared with the preceding year, the reason for the change must be given. Compute the percentage change on the previous year's ratio as the base.

What is additional regulatory information in Schedule III?

It is a set of extra disclosures given in the notes, such as ratios, title deeds of immovable property not held in the company's name, wilful defaulter status and relationship with struck-off companies. Learn it as a checklist and apply it where the question gives relevant facts.