Financial statements are the basic and formal annual reports through which the corporate management communicates financial information to its owners and various external parties. These normally refer to the Balance Sheet and the Statement of Profit and Loss of a company.
The following points explain the nature of financial statements:
The primary objective of financial statements is to assist the users in their decision making. The specific objectives include the following:
Following are the important limitations of financial statements:
Balance Sheet (Extract)
Particulars |
Note no. |
₹ |
I. Equity and Liabilities |
|
|
1. Non-current Liabilities |
|
|
Long-term Borrowings |
1 |
35,00,000 |
2. Current Liabilities |
|
|
Other Current Liabilities |
2 |
2,50,000 |
Notes to Accounts:
Particulars |
₹ |
1. Long-term Borrowings |
|
25,000 10% debentures of ₹100 each |
25,00,000 |
Bank loan |
10,00,000 |
|
35,00,000 |
2. Other Current Liabilities |
|
Interest accrued and due on debentures |
2,50,000 |
Balance Sheet as on….
Particulars |
Note no. |
₹ |
I. Equity and Liabilities |
|
|
1. Shareholders’ Funds |
|
|
(a) Share Capital |
1 |
22,00,000 |
(b) Reserves and Surplus |
2 |
6,00,000 |
2. Non-current Liabilities |
|
|
(a) Long-term Borrowings |
3 |
12,00,000 |
3. Current Liabilities |
|
|
(a) Trade Payables |
4 |
3,50,000 |
(b) Short-term Provisions |
5 |
2,50,000 |
Total |
|
46,00,000 |
II Assets |
|
|
1. Non-current Assets |
|
|
(a) Fixed Assets |
|
|
Tangible Assets |
6 |
24,00,000 |
(b) Non-current Investment |
7 |
10,00,000 |
2. Current Assets |
|
|
(a) Inventories |
8 |
7,00,000 |
(b) Cash and Cash Equivalents |
9 |
5,00,000 |
Total |
|
46,00,000 |
Notes to Accounts:
Particulars |
₹ |
||
1. Share Capital |
|
||
Equity share capital |
16,00,000 |
|
|
8% Preference share capital |
6,00,000 |
22,00,000 |
|
2. Reserves and Surplus |
|
|
|
General Reserve |
6,00,000 |
||
3. Non-current Liabilities |
|
|
|
Long-term Borrowings |
|
||
12% Debentures |
12,00,000 |
||
4. Trade Payables |
|
||
Sundry Creditors |
2,00,000 |
|
|
Bills Payable |
1,50,000 |
3,50,000 |
|
5. Short-term Provision |
|
||
Provision for tax |
2,50,000 |
||
6. Tangible Assets |
|
||
Land & Building |
16,00,000 |
|
|
Plant and Machinery |
8,00,000 |
24,00,000 |
|
7. Non-current Investment |
10,00,000 |
||
8. Inventories |
7,00,000 |
||
9. Cash and Cash Equivalents |
|
||
Cash at Bank |
5,00,000 |
The process of preparing income statement (or statement of profit and loss) is given below in chronological order:
The process of preparing Balance Sheet of a company is as follows:
Though utmost care is taken in the preparation of the financial statements and provide detailed information to the users, they suffer from the following limitations:
The importance and significance of financial statements are as follows:
i. Current assets are shown on the assets part of the balance sheet. Inventory is shown under the head Current Assets and sub head inventories.
ii. Contingent liability is not recorded in the books of accounts but is disclosed in the notes to accounts for the information of the users. It includes:
Claim against the company not acknowledge as debts;
Proposed Dividend (Current Year).
iii. Shareholders’ funds are shown in the Equity and Liabilities part of the balance sheet. Reserves and Surplus are shown under the head shareholders’ fund.
iv. Fixed Assets are shown under the head Non- Current Assets. Intangible Assets are shown under the head Non- Current Assets and Sub- heads Fixed Assets.
v. Proposed Dividend for the current year is treated as a Contingent Liability and shown in the notes to Accounts.
vi. Non-Current liabilities are shown in the Equity and Liabilities part of the Balance sheet.
vii. Arrears of dividend on cumulative preference shares are sown as ‘Commitments in Notes to Account’.
Particulars | ₹ |
General Reserve | 3,000 |
10% Debentures | 3,000 |
Balance in Statement of P & L | 1,200 |
Depreciation on fixed assets | 700 |
Gross Block | 9,000 |
Current liabilities | 2,500 |
Preliminary expenses | 300 |
6% Preference Share Capital | 5,000 |
Cash & Cash Equivalents | 6,100 |
Balance Sheet
Particulars |
Note no. |
₹ |
I. Equity and Liabilities |
|
|
1. Shareholders’ Funds |
|
|
(a) Share Capital |
1 |
5,000 |
(b) Reserves and Surplus |
2 |
4,200 |
2. Non-current Liabilities |
|
|
(a) Long-term Borrowings |
3 |
3,000 |
3. Current Liabilities |
|
|
(a) Other Current Liabilities |
4 |
2,500 |
Total |
|
14,700 |
II Assets |
|
|
1. Non-current Assets |
|
|
(a) Fixed Assets |
|
|
Tangible Assets |
5 |
8,300 |
2. Current Assets |
|
|
(a) Cash and Cash Equivalents |
6 |
6,100 |
(b) Other Current Assets |
7 |
300 |
Total |
|
14,700 |
Notes to Accounts:
Particulars |
₹ |
|||
1. Share Capital |
|
|||
6% Preference Share Capital |
5,000 |
|||
2. Reserves and Surplus |
|
|
||
General Reserve |
3,000 |
|
||
Balance in Statement of P & L |
1,200 |
4,200 |
||
3. Non-current Liabilities |
|
|
||
Long-term Borrowings |
|
|||
10% Debentures |
3,000 |
|||
4. Other Current Liabilities |
|
|||
Current Liabilities |
|
2,500 |
||
5. Tangible Assets |
|
|||
Gross Block |
9,000 |
|
||
Less: Depreciation |
700 |
8,300 |
||
6. Cash and Cash Equivalents |
6,100 |
|||
7. Other Current Assets |
|
|||
Preliminary Expenses |
300 |
Balance Sheet
Particulars |
Note no. |
₹ |
I. Equity and Liabilities |
|
|
1. Shareholders’ Funds |
|
|
(a) Share Capital |
1 |
10,00,000 |
(b) Reserves and Surplus |
2 |
10,000 |
2. Non-current Liabilities |
|
|
(a) Long-term Borrowings |
3 |
3,00,000 |
3. Current Liabilities |
|
|
(a) Other Current Liabilities |
4 |
1,00,000 |
Total |
|
14,10,000 |
II Assets |
|
|
1. Non-current Assets |
|
|
(a) Fixed Assets |
|
|
Tangible Assets |
5 |
10,00,000 |
(b) Non-current Investment |
6 |
3,00,000 |
2. Current Assets |
|
|
(a) Inventories |
7 |
1,00,000 |
(b) Other Current Assets |
8 |
10,000 |
Total |
|
14,10,000 |
Notes to Accounts:
Particulars |
₹ |
||||
1. Share Capital |
|
||||
Equity share capital |
|
10,00,000 |
|||
50,000 equity shares of `20 each fully paid-up |
|
||||
2. Reserves and Surplus |
|
|
|||
Capital Redemption Reserve |
1,00,000 |
|
|||
Statement of P&L (Dr.) |
(90,000) |
10,000 |
|||
Shares Options Outstanding Account |
10,000 |
|
|||
3. Non-current Liabilities |
|
|
|||
Long-term Borrowings |
|
||||
10% Debentures |
3,00,000 |
||||
4. Other Current Liabilities |
|
||||
Unpaid dividends |
90,000 |
|
|||
Share Option Outstanding |
10,000 |
1,00,000 |
|||
5. Tangible Assets |
|
||||
Building |
|
10,00,000 |
|||
6. Non-current Investment |
|
||||
Investments in the shares of Metro Tyres Ltd. |
3,00,000 |
||||
7. Inventories |
|
||||
Stores and Spares |
1,00,000 |
||||
8. Other Current Assets |
10,000 |
||||
|
|
||||
Note: There is a misprint in the book. The number of equity shares issued must be 50,000 so that both the sides of the Balance Sheet stand equal.
Balance Sheet
Particulars |
Note no. |
₹ |
I. Equity and Liabilities |
|
|
1. Shareholders’ Funds |
|
|
(a) Share Capital |
1 |
32,00,000 |
(b) Reserves and Surplus |
2 |
6,00,000 |
2. Non-current Liabilities |
|
|
(a) Long-term Borrowings |
3 |
12,00,000 |
3. Current Liabilities |
|
|
(a) Short-term Borrowings |
4 |
4,00,000 |
(b) Other Current Liabilities |
5 |
3,00,000 |
(c) Short-term Provisions |
6 |
5,00,000 |
Total |
|
62,00,000 |
II Assets |
|
|
1. Non-current Assets |
|
|
(a) Fixed Assets |
|
|
Tangible Assets |
7 |
30,00,000 |
2. Current Assets |
|
|
(a) Current Investments |
8 |
8,00,000 |
(b) Inventories |
9 |
14,00,000 |
(c) Cash and Cash Equivalents |
10 |
10,00,000 |
Total |
|
62,00,000 |
Notes to Accounts:
Particulars |
₹ |
||
1. Share Capital |
|
||
Equity share capital |
20,00,000 |
|
|
Preference share capital |
12,00,000 |
32,00,000 |
|
2. Reserves and Surplus |
|
|
|
Debenture Redemption Reserve |
6,00,000 |
||
3. Non-current Liabilities |
|
|
|
Long-term Borrowings |
|
||
Public Deposits |
12,00,000 |
||
4. Short-term Borrowings |
|
||
Short term loan from Zaveri Ltd (a subsidiary company of Twilight Ltd) |
4,00,000 |
||
5. Other Current Liabilities |
|
||
Outstanding expenses |
3,00,000 |
||
6. Short-term Provisions |
|
||
Proposed dividend |
5,00,000 |
||
7. Tangible Assets |
|
||
Land & Building |
20,00,000 |
|
|
Plant and Machinery |
10,00,000 |
30,00,000 |
|
8. Current Investment |
8,00,000 |
||
9. Inventories |
14,00,000 |
||
10. Cash and Cash Equivalents |
10,00,000 |
Balance Sheet as at….
Particulars |
Note no. |
₹ |
I. Equity and Liabilities |
|
|
1. Non-current Liabilities |
|
|
Long-term Borrowings |
1 |
10,00,000 |
Total |
|
10,00,000 |
II Assets |
|
|
Current Assets |
|
|
1. Cash and Cash Equivalents |
3 |
8,00,000 |
2. Other Current Assets |
4 |
2,00,000 |
Total |
|
10,00,000 |
Notes to Accounts:
Particulars |
₹ |
1. Long-term Borrowings |
|
10,000 12% debentures of ₹100 each |
10,00,000 |
2. Cash and Cash Equivalents |
|
Cash at Bank |
8,00,000 |
3. Other Current Assets |
|
Disc. on issue of debentures (unamortised) |
2,00,000 |
(To be written off within 12 months from the date of Balance Sheet) |
|
Particulars | ₹ | Particulars | ₹ |
Preliminary Expenses | 2,40,000 | Goodwill | 30,000 |
Discount on issue of shares | 20,000 | Loose tools | 12,000 |
10% Debentures | 2,00,000 | Motor Vehicles | 4,75,000 |
Stock in trade | 1,40,000 | Provision for tax | 16,000 |
Cash at bank | 1,35,000 | ||
Bills receivable | 1,20,000 |
Balance Sheet (Extract)
Particulars |
Note no. |
₹ |
I. Equity and Liabilities |
|
|
1. Non-current Liabilities |
|
|
Long-term Borrowings |
1 |
2,00,000 |
2. Current Liabilities |
|
|
a. Short-term Provisions |
2 |
16,000 |
II Assets |
|
|
1. Non-Current Assets |
|
|
a. Fixed Assets |
|
|
Tangible Assets |
3 |
4,75,000 |
Intangible Assets |
4 |
30,000 |
b. Other Non-Current Assets |
|
|
2. Current Assets |
|
|
a. Inventories |
5 |
1,52,000 |
b. Bill receivables |
6 |
1,20,000 |
c. Cash and Cash Equivalents |
7 |
1,35,000 |
d. other Current Assets |
8 |
2,60,000 |
Notes to Accounts:
Particulars |
₹ |
||
1. Long-term Borrowings |
|
||
10% debentures |
2,00,000 |
||
2. Short-term Provisions |
|
||
Provision for taxation |
16,000 |
||
3. Fixed Assets |
|
||
Tangible Assets |
|
||
Motor Vehicles |
4,75,000 |
||
Intangible Assets |
|
||
Goodwill |
30,000 |
||
4. Other Non-current Assets |
|
||
Preliminary expenses |
2,40,000 |
|
|
Disc. on issue of debentures |
20,000 |
2,60,000 |
|
5. Inventories |
|
||
Stock-in trade |
1,40,000 |
|
|
Loose tools |
12,000 |
1,52,000 |
|
6. Trade Receivables |
|
||
Bills Receivables |
1,20,000 |
||
7. Cash and Cash Equivalents |
|
||
Cash at Bank |
1,35,000 |
||
8. Other Current Assets |
|
||
Preliminary Expenses 2,40,000 |
|
||
Discount on Issue of Shares 20,000 |
2,60,000 |
||
|
2,60,000 |
PART I
Form of Balance Sheet.
Name of the Company……………………..
Balance Sheet as at …………………………
Particulars |
Note No.
|
Figures as at the end of
|
Figures as at the end of |
I. EQUITY AND LIABILITIES |
|
|
|
(1) Shareholders’ Funds |
|
|
|
(a) Share Capital |
|
|
|
(b) Reserves and Surplus |
|
|
|
(c) Money received against share warrants |
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|
|
(2) Share Application Money Pending Allotment |
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|
|
(3) Non-Current Liabilities |
|
|
|
(a) Long term borrowings |
|
|
|
(b) Deferred tax liabilities (Net) |
|
|
|
(c) Other long term liabilities |
|
|
|
(d) Long term provisions |
|
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(4) Current Liabilities |
|
|
|
(a) Short term borrowings |
|
|
|
(b) Trade payables |
|
|
|
(c) Other current liabilities |
|
|
|
(d)Short term provisions |
|
|
|
Total |
|
|
|
II. ASSETS |
|
|
|
(1) Non Current Assets |
|
|
|
(a) Fixed Assets |
|
|
|
(i) Tangible Assets |
|
|
|
(ii) Intangible Assets |
|
|
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(iii) Capital work in progress |
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|
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(iv) Intangible assets under development |
|
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|
(b) Non-current investments |
|
|
|
(c) Deferred tax assets (net) |
|
|
|
(d) Long term loans and advances |
|
|
|
(e) Other non-current assets |
|
|
|
(2) Current Assets |
|
|
|
(a) Current investments |
|
|
|
(b) Inventories |
|
|
|
(c) Trade receivables |
|
|
|
(d) Cash and cash equivalents |
|
|
|
(e) Short term loans and advances |
|
|
|
(f) Other current assets |
|
|
|
Total |
|
|
|
Equity and Liabilities: It is divided into two parts – liability towards owners, i.e., equity, and liability towards outsiders.
Share Capital: It shows the details of the authorised capital, issued capital and paid-up capital in terms of the number and amount of each type of share, and also the amount of calls in arrears and the forfeited shares.
Reserves and Surplus includes Capital Reserves, Capital Redemption Reserve, Securities Premium Reserve, Debenture Redemption Reserve, Share Options Outstanding Account, Other Reserves (specify the nature and purpose of each reserve and the amount in respect thereof), Surplus, i.e., balance in the Statement of Profit and Loss after appropriations such as dividend, bonus shares etc.
Money received against share warrants: It is a part of the shareholders’ funds. These are instruments issued by a company that are converted into shares at a pre determined price, at a later date.
Non-current liabilities are those liabilities which are not due for payment within the next 12 months.
Current liabilities are those liabilities which are due for payment within the next 12 months.
Assets: These are broadly classified into two types, i.e., non-current assets and current assets.
Non-current Assets: These are assets which are not held with the purpose of selling or converting them into cash, but to improve the earning capacity of a business.
Current Assets: It includes current investments, inventories, trade receivables, cash and cash equivalents, short term loans and advances and other current assets.
Form of Statement of Profit and Loss
Particulars |
Note No. |
Figures at the end of current reporting period |
Figures at the end of previous reporting period |
I. Revenue from operations |
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|
|
II. Other income |
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III. Total revenue |
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IV. Expenses |
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|
|
Cost of materials consumed |
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|
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Purchases of stock-in-trade |
|
|
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Changes in inventories of |
|
|
|
Finished goods |
|
|
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Work-in-progress |
|
|
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Stock-in-trade |
|
|
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Employees benefit expenses |
|
|
|
Finance costs |
|
|
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Depreciation and amortisation expenses |
|
|
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Other expenses |
|
|
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Total expenses |
|
|
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V. Profit before tax (III – IV) |
|
|
|
Revenue from operations: It includes Net sales, sale of scrap and revenue from services.
Other income: It includes rent received, interest and dividend received and profit on sale of fixed assets or investment.
Cost of materials consumed: It is equal to opening inventory of materials plus net purchases minus closing inventory of materials.
Changes in inventories of finished goods, work-in-progress and stock-in-trade: It is equal to opening inventory minus closing inventory.
Employee benefit expenses: It includes the following:
Depreciation and amortisation expenses: Depreciation refers to amount of tangible assets written off. Amortisation refers to amount of intangible assets written off.
Finance costs: It includes the following:
Other expenses: It includes expenses other than the above six heads of expense. These could be telephone expenses, rent and taxes, selling and distribution expenses, loss on sale of fixed assets or investments, bad debts, cash discount allowed etc.
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Yes, Extramarks provides all NCERT class 12 solutions for all subjects for class 12. Extramarks - The Learning App also has solved and unsolved sample papers that you can use to practice for your exams. You can also find the previous year`s solved board question paper on the app.
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