Final Accounts of Companies and Schedule III Format

Understand Final Accounts of Companies and Schedule III

Key rules to remember

Balance Sheet equality

Total Equity and Liabilities = Total Assets

Both totals must match. If they do not, an item is misclassified or missing.

Shareholders' funds

Shareholders' funds = Share capital + Reserves and surplus + Money received against share warrants

Securities premium, general reserve and the surplus (balance in the Statement of Profit and Loss) go under Reserves and surplus.

Total revenue

Total revenue = Revenue from operations + Other income

Interest and dividend received are usually Other income for a non-finance company.

Profit before tax

Profit before tax = Total revenue − Total expenses

Total expenses include cost of materials consumed, purchases of stock-in-trade, changes in inventories, employee benefit expense, finance costs, depreciation and amortisation, and other expenses.

Profit after tax

Profit for the period = Profit before tax − Tax expense

Tax expense has current tax and deferred tax. Exceptional items, if any, are shown before arriving at profit before tax.

Current / non-current test

Due or realisable within 12 months (or operating cycle) = current; otherwise non-current

Apply this to both assets and liabilities.

How to solve Final Accounts of Companies and Schedule III questions

1. 1Read the question and list every item given with its amount. Note whether it is a balance sheet item or a profit and loss item.
2. 2Draw the Statement of Profit and Loss skeleton: Revenue from operations, Other income, Total revenue, then each expense head, then profit before tax, tax, and profit for the period.
3. 3Place each income and expense under its correct Schedule III head. Put interest on loans under Finance costs and salaries under Employee benefit expense.
4. 4Compute profit before tax and profit after tax. Carry the profit to Reserves and surplus (Surplus) after any appropriations given.
5. 5Draw the Balance Sheet skeleton: Shareholders' funds, Non-current liabilities, Current liabilities, then Non-current assets and Current assets.
6. 6Classify each balance sheet item using the 12-month test. Show subtotals for each head.
7. 7Total both sides and check that Equity and Liabilities equal Assets. Fix any difference before writing the final answer.
8. 8Add note numbers or brief notes if asked. Write the company name and the date of the statement.

Quickest way: Head-by-head classification drill

Common mistakes in Final Accounts of Companies and Schedule III

• Writing the Balance Sheet in the old horizontal T-form for a company

  Students carry over the trader's format from earlier chapters.

  Fix: For companies use the vertical Schedule III form. Equity and Liabilities come first, then Assets, with all headings in prescribed order.

• Showing Reserves and surplus outside Shareholders' funds

  Reserves feel like a separate item from share capital.

  Fix: Reserves and surplus belong to the owners, so show them inside Shareholders' funds, next to Share capital.

• Putting bank overdraft or short-term loans under Other current liabilities or Cash

  Students link overdraft with the bank balance.

  Fix: Show a bank overdraft and loans repayable within a year under Short-term borrowings (current liabilities). Never net it against cash unless the question says so.

• Misplacing the current portion of a long-term loan

  Students classify the whole loan by its original term.

  Fix: The part due within twelve months is a current liability (other current liabilities). Only the rest stays under Long-term borrowings.

• Treating interest on borrowings or depreciation as part of 'Other expenses'

  Students group all remaining expenses together.

  Fix: Interest goes under Finance costs and depreciation under Depreciation and amortisation expense. Only the rest goes to Other expenses.

• Forgetting to carry the profit to the Balance Sheet

  Students treat the profit statement and Balance Sheet as unrelated.

  Fix: Add the profit for the period to the opening balance in the Statement of Profit and Loss (under Reserves and surplus). Then the Balance Sheet will agree.

Worked examples