Schedule III of the Companies Act, 2013 provides the framework for preparing and presenting financial statements of companies in India. It standardizes the balance sheet, statement of profit and loss, and related disclosures, ensuring consistency and comparability across financial statements.
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1. Presentation of Items in Schedule III (Division I) + Operating Cycle
FAQ 1. Under which head should the following accounts be classified in the Balance Sheet, as per Schedule III of the Companies Act, 2013?
(i) Share application money received in excess of issued share capital.
(ii) Share option outstanding account.
(iii) Unpaid matured debenture and interest accrued thereon.
(iv) Uncalled liability on shares and other partly paid investments.
(v) Calls unpaid.
(vi) Intangible Assets under development.
(vii) Money received against share warrant.
(viii) Cash equivalents.
(i) Current Liabilities/Other Current Liabilities
(ii) Shareholders’ Fund/Reserve & Surplus
(iii) Current liabilities/Other Current Liabilities
(iv) Contingent Liabilities and Commitments
(v) Shareholders’ Fund/Share Capital
(vi) Fixed Assets
(vii) Shareholders’ Fund/Money received against share warrants
(viii) Current Assets
FAQ 2. State under which head these accounts should be classified in Balance Sheet, as per Schedule III of the Companies Act?
(i) Share application money received in excess of issued share capital.
(ii) Share option outstanding account.
(iii) Unpaid matured debenture and interest accrued thereon.
(iv) Uncalled liability on shares and other partly paid investments.
(v) Calls unpaid.
(vi) Intangible Assets under development.
(vii) Money received against share warrant.
(viii) Long-term maturity of finance lease obligation.
Classification for the presentation in Schedule III to the Companies Act, 2013
| S. No. | Accounts | Head |
| (i) | Share application money received in excess of issued share capital | Other Current Liabilities |
| (ii) | Share option outstanding account | Reserve & Surplus |
| (iii) | Unpaid matured debenture and interest accrued thereon | Other Current Liabilities |
| (iv) | Uncalled liability on shares and other partly paid investments | Contingent Liabilities and commitments-commitments to the extent not provided for |
| (v) | Calls unpaid | Share Capital |
| (vi) | Intangible Assets under development | Fixed Assets |
| (vii) | Money received against share warrant | Shareholders’ Fund |
| (viii) | Long-term maturity of finance lease obligation | Long-Term Borrowings |
FAQ 3. State under which head these accounts should be classified in Balance Sheet, as per Schedule III of the Companies Act, 2013?
(i) Share application money received in excess of issued share capital.
(ii) Share option outstanding account.
(iii) Unpaid matured debenture and interest accrued thereon.
(iv) Uncalled liability on shares and other partly paid investments.
(v) Calls unpaid.
(i) Current Liabilities/Other Current Liabilities
(ii) Shareholders’ Fund/Reserve & Surplus
(iii) Current liabilities/Other Current Liabilities
(iv) Contingent Liabilities and Commitments
(v) Shareholders’ Fund/Share Capital
FAQ 4. A Company took a loan from bank for ` 10,00,000 to be settled within 5 years in 10 equal half-yearly instalments with interest. First instalment is due on 30.09.2020 of ` 1,00,000. How the loan will be classified in preparation of Financial Statements of company for the year ended on 31st March, 2020 according to Schedule III?
As per Schedule III, a liability should be classified as current when it satisfies any of the following criteria:
(i) it is expected to be settled in the company’s normal operating cycle;
(ii) it is held primarily for the purpose of being traded;
(iii) it is due to be settled within twelve months after the reporting date; or
(iv) the company does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting date.
In the given case, instalments due on 30.09.2020 and 31.03.2021 will be shown under the head ‘other current liabilities’.
Therefore, in the balance sheet as on 31.3.2020, ` 8,00,000 (` 1,00,000 × 8 instalments) will be shown under the heading ‘Long-term Borrowings’ and ` 2,00,000 (` 1,00,000 × 2 instalments) will be shown under the heading ‘Other Current Liabilities’ as current maturities of loan from bank.
FAQ 5. (a) A company had the following items under the head “Reserves and Surplus” in the Balance Sheet as on 31st March, 2013:
Amount ` in lakhs
Securities Premium Account: 80
Capital Reserve 60
General Reserve 90
The company had an accumulated loss of ` 250 lakhs on the same date, which it has disclosed under the head “Statement of Profit and Loss” as asset in its Balance Sheet.
Comment on accuracy of this treatment in line with Schedule III to the Companies Act, 2013.
(b) A Company took a loan from bank for ` 10,00,000 to be settled within 5 years in 10 equal half yearly instalments with interest. First instalment is due on 30.09.2013 of ` 1,00,000.
How the loan will be classified in preparation of Financial Statements of company for the year ended on 31st March, 2013 according to Schedule III?
(a) Part I of Schedule III provides that debit balance of Statement of Profit and Loss (after all allocations and appropriations) shall be shown as a negative figure under the head ‘Surplus’. Similarly, the balance of ‘Reserves and Surplus’, after adjusting negative balance of surplus, shall be shown under the head ‘Reserves and Surplus’ even if the resulting figure is in the negative. In this case, the debit balance of profit and loss i.e. ` 250 lakhs exceed the total of all the reserves i.e. ` 230 lakhs. Therefore, balance of ‘Reserves and Surplus’ after adjusting debit balance of profit and loss is negative by ` 20 lakhs, which should be disclosed on the face of the balance sheet.
(b) As per Schedule III, a liability shall be classified as current when it satisfies any of the following criteria:
(i) it is expected to be settled in the company’s normal operating cycle;
(ii) it is held primarily for the purpose of being traded;
(iii) it is due to be settled within twelve months after the reporting date; or
(iv) the company does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting date.
In the given case, instalments due on 30.09.2013 and 31.03.2014 will be shown under the head ‘other current liabilities’ as per criteria (c).
Therefore, in the balance sheet as on 31.3.2013, ` 8,00,000 (` 1,00,000 × 8 instalments) will be shown under the heading ‘Long-term Borrowings’ and ` 2,00,000 (` 1,00,000 × 2 instalments) will be shown under the heading ‘Other Current Liabilities’ as current maturities of loan from bank.
FAQ 6. (i) A company provides the following information:
Raw Material stock holding period – 3.5 months
Work-in-progress holding period – 1 month
Finished goods holding period – 4.5 months
Debtors collection period – 6 months
Compute the operating cycle of the company. What would happen if the trade payables of the company are paid in 14 months-whether these should be classified as current or non-current liability?
(ii) The management of the company contends that the work in progress is not valued since it is difficult to ascertain the same in view of the multiple processes involved. They opine that the value of opening and closing work in progress would be more or less the same. Accordingly, the management had not separately disclosed the work in progress in its financial statements. Comment in line with Schedule III.
(i) According to Schedule VI “An operating cycle is the time between the acquisition of assets for processing and their realization in cash or cash equivalents”.
Therefore, operating cycle of the company will be computed as:
Raw material stock holding period + Work-in-progress holding period + Finished goods holding period + Debtors collection period
= 3.5 + 1 + 4.5 + 6= 15 months
A Liability shall be classified as current when it is expected to be settled in the Company’s normal operating cycle.
Since the operating cycle of company is 15 months, trade payables expected to be paid in 14 months should be treated as a current liability.
(ii) Schedule III does not require WIP to be disclosed in the Statement of Profit and Loss, thus amounts for which WIP have been completed at the beginning and at the end of the accounting period may not be disclosed. Therefore, the non-disclosure in the financial statements of company may not amount to violation of Schedule III if the differences between opening and closing WIP are not material.
2. Managerial Remuneration
FAQ 7. The Companies Act, 2013 limits the payment of managerial remuneration. What is the maximum managerial remuneration, which can be paid in case of a company consistently earning profits and has more than one managerial person?
Companies Act, 2013 prescribes the overall maximum managerial remuneration payable and also managerial remuneration in case of absence or inadequacy of profits.
In the given case, the company is earning profits consistently and has more than one managerial person; therefore, the maximum limit is 10% of net profit.
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