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Class 12 Financial Statements of a Company: cheat sheet
CBSE Accountancy. A company’s financial statements: the Schedule III balance sheet and Statement of Profit and Loss, their main heads and sub-heads, and totals from given items.
Key ideas
- Financial statements (balance sheet, statement of profit and loss, notes, cash flow statement) mix recorded facts, conventions, postulates and personal judgements.
- The Schedule III balance sheet has I. Equity and Liabilities (shareholders’ funds, non-current liabilities, current liabilities) and II. Assets (non-current, current).
- Shareholders’ funds are share capital (with share forfeiture) and reserves and surplus; a debit balance of surplus is shown as a negative item there.
- Long-term borrowings hold debentures and long-term loans; a bank overdraft is a short-term borrowing, creditors and bills payable are trade payables, and calls in advance are other current liabilities.
- Non-current assets are property, plant and equipment, intangible assets (goodwill, patents) and non-current investments; inventories include loose tools.
- The Statement of Profit and Loss sets total expenses against revenue from operations plus other income to give profit before tax, then deducts tax.
- Interest on debentures and loans is a finance cost; salaries and staff welfare are employee benefits expense; advertisement, rent and repairs are other expenses.
Remember
| Shareholders’ funds | share capital + reserves and surplus |
| Reserves and surplus | securities premium + general reserve + surplus (minus a debit balance) |
| Balance sheet total | shareholders’ funds + non-current liabilities + current liabilities = non-current assets + current assets |
| Revenue from operations | sales − returns + other operating revenue such as scrap sales |
| Profit before tax | revenue from operations + other income − total expenses |
| Profit for the period | profit before tax − tax (profit before tax × tax rate) |
Watch out
- Adding debentures into shareholders’ funds.
- Showing a bank overdraft as a long-term borrowing.
- Putting calls in advance in share capital instead of other current liabilities.
Worked example
Brightway Ltd has securities premium ₹76,000, general reserve ₹82,000 and a credit balance of ₹28,000 in the Statement of Profit and Loss (surplus). Find the total of “Reserves and surplus”.
Working: ₹76,000 + ₹82,000 + ₹28,000 (a debit balance is shown as a negative item under reserves and surplus)
Answer: ₹1,86,000
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