Final Accounts of Companies PDF

~- iiJ v i\WS;:: e wl unts of Companies -=-.. 7.2. ll ~~ce o PROFIT AN D~...

~- iiJ v i\WS;:: e wl unts of Companies -=-.. 7.2. ll ~~ce o PROFIT AN D~ ~11 ;,oJ Of OFS'fATEMENTOI' (....RfflllllSdwdutieVI) ,~ and Lallof-fortbeyearmded· ~~ NoteNo. Jlt.. front operations 1 - Jte\dlue joCOdle 2 - :~(A) PY"'". cost of materials consumed 3 of stoek-in- trade : : :in inventories of finished goods/ WIP Stock· in- trade Employee benefits expenses 4· ,. Fin&DCC costs s ,. Depreciation and amortisation expenses 6. ]DK Other :expenses 7 )NC Total Expenses (B) )DD[ Profit before extraordinary items and tax (A - B) )DDC Les.,: Extraordinary items JIK ~ Taic· ]Ill[ ·Profit or loss for the period JIit Ceatenta of Statement of Profit and Lois ~- Revenue from opentions: It refers to revenue earned by the company from ltsol)erating activities. It may be net sales or gross pro.fit of the manu facturing ~Y or tr.ding company or fee earned by a service company and interest dividend earned by a financial company. · t Otlaer laeome: It indicates. income earned from non operatina activities of a ~y. It may include pro.flt on sale offixed assets, excess provision writte n llue interest earned on fixed deposits with banks by non- finan ce compQny,. ~e:~st on investments, dividend earned by non- finance company, disco unt lticoIVed, commission received, export subsidy and duty draw back , refun d of ! CIlle IQr, miscel/aneoWJ income. ~Ostat of ~teri ala consumed: It is the cost ofraw materials and other material lllned m manufacturing the goods. It is , opening invent~ry ~ ~ - - + ,...\...\ ' ' \... '.  IDI wt 73 Corporate Acc o~ + c~~ Inwards + ot1-rl expen ses incur red o,; Purcha.te or ~ P urcha ses.., , ~--.., rnato-ials - closing 1nw111ory of mat~ria s......__... f tock-l a-trad e: Stock in trade mean ""-- _. s goods Pure" aa.,ea....-wn; aaH o. furth. for reselling. If the company ~es out er proce ssing on the gOOds PurchA a.....:a they do not remain stoek 1n trade but becom e part of the cost of rna ~ consumed. 5. Oalll el 1111nventorle1 of finished goods , work-in- progr eu and toek- tncle: If the opening inventories of finished goods, work- in- progress hi- sradc- in- u,ide are greate r than closing inventories of finished aOOds, wo:_':! projiC SS and stock- in- trade, the differei:ice is positive. In case, the clos·lll inventories of finished goods, work- in- progress and stoc~- in- trade a r e ~ than opening inventories of finished goods, work- in- progress and stock- in- trade, the difference is negative. The changes in inventories of finished gods, 1 work- in- progress and stock- in- trade are show n separately in the notes to accounts. and the balance in each inventory is 'added to show one amount against the entry in the statement of profit and;los~. 6. Empl oyees Benef it Expenses: All the expenses incurred by the company on its employees are brought under this head and show n as a part of Expenses in the Statem ent of profit and loss. They include wages, salaries, bonus, leave encashment, gratu ity paid, medical expenses. 7. Finan ce coats: Costs incurred by the company on its borrowings come under t this bead. They include interest 01' overdraft, intere st (!n debentures, interes on publi c deposits, interest on bonds, interest on cash credit, interest on term loans, discou nt on issue ofdebentures writte n off. 8. Depredation and amortisation Expenses: Depreciation is the fall in the value of fixed assets due to their usage or afflux oftime or obsolescence. Amortisation like depreciation, is the cost of intangible assets writte n off over their useful life. Depreciation on building, plant & machinery, loose tools, furniture, colllfll"'' software, goodwill written off, paten ts written off are some of the items shown under this bead. Preliminary expenses written offare aiso show n under thi$ bead- 9 Other expen1e1: Expenses that do not find place in the abovementioned heads, are brought under this head. They includ e admin istrat ive expen.s eS, -~n.ses, sellin g and marke ting expen ses, carria ge outwa rds, teleph one eXr- electricity expenses, rent and rates, sundr y expenses. ses frOOl. 10. Extra ordin ary items: These may an expen se or mcom e that an f·tbe. ties 0 events or transactions that are clearly distin ct from ordinat"Y actiVl fjna!Aceounts ofCompanies U ·;;,-raac1 tberefore. are not expected to recur frequently ornssuJarly, Bxainples ,re: (i) speculation loss or gain ifspeculation is not stated objectiv~ oftbecPmpany. (iO l!oSS on.account of fire (di) lo due to natural calamities like floods, earthquakes (iv) ~arie s and wages paid for previous periods due to agr~e nts with.~retrospective effects. ", 11, Tai:' ' As it is not possible to·detennine the amoun t oftax payable at the time. ofpreparing final accounts,of the company, i~ is_ necess ary to create a ~ o e ~fan estimate. The provision for taxation is subtracted for ' - non the basis taxatio.,. , from the profit before extraordinary items and tax to find profit or loss for the period. Such provision for taxation is also shown under short term provisions head 'current liabilities'. The journal. in the balance sheet undern the wbicJt appear entry for current provision for taxatio is as follows: Profit &Loss Ale Dr. lR ~visi on for taxation A/c Just as provision is made in the current year, provision for taxation would have -. been in the previous year and such provision ,called, 'Existing provision' would appear in th~.credit side oftrial balance. When such provision exists, income tax - pai~.must be debited to provision account. Ifthe existing·provision is in excess o~~ !ncome tax paid, such ex~s provisiol\ should be added to the profit for the current period. In case the existing provision is insufficient, it is necessary _to ,r-ake further provision which is to be deducted from the profit for the period. ~- Under section 208 ofthe Income Tax Act, 1961, a company is required to pay its oatirnated income tax liability in the year in which income. is earned by it. Advance tax lbaU be pa~i e duri.q the financial year in every case wher e~ amount of IUCrh tax payable by the company duriq that year, as computed in accordance with~ provisions of advance tax, is Ra. I0,000 or DiOre. The followinajoumal entry ·ii pused when advance tax is paid: Advance tax Ale Dr. ToBaokA/c Advance tax is shown as ' short tenn loans and advances' which comes under the head ' current assets~ in the balance sheet and it can later be adjusted towards income tax payable after the assessment is over. r (o' (b 1.S Corporate A. CCounting 1u deducted at souree.. ~ \ 'i!' Whenever a company pays interest on securities dividend8 sat· ' em~loyees etc., it has to deduct tax on the amount paid. Deduction~- anes to on the amount payable will be made ' at the rate in force'. While tnakintnconie tat ! for interest on debentures, the TDS is shown on the liabilities side of I>aYrnea. sheet as an item of'other current liabilities'. till it is pajd by the eornt balance Government. On the other hand, while receiving interest on ·sec~-tothe dividends, the TDS is shown as short term loans and advances ~tres or under the head ' current assets' in the balance sheet. The ms can 1COtnes adjusted towards income tax payable after the assessment is over. It can:~ reduced from current year's provision for income tax on the liabilities side ofthe balance sheet. Iaeometu Income tax pay~ble should be debited to income tax account and TDS and advance tax should be adjusted in this account. For example, ifthe tax payable on assessed income is Rs.1,50,000 and the company has already paid in advance Rs.1,00,000, the balance tax amount payable only is Rs.50,000. The jouinal entry will be: tncome tax A/ c Dr.- 1,50,000 To Advance tax Ale 1,00, I : ToBankA/c so,ooo·. If the assessment is not completed, both 'advance~, and' 'TDS' reiD11D unadjusted and would appear as, ' short term loans and advances' which·comes. ' under the head ' current assets' ·m the balance sheet. Balance Sheet. ·. , 's EqUity Balance sheet is a financial statement that summanses compaDY ts (shareholders' funds), liabilities and assets. These thfCC Balance sheet :;.Y i.e., F.quity ( shareholders' funds), liabilities and assets sboW$ ~hat:1~iJitie.l owns and what it owes. In the first part ofthe balance sheet, eqwty , funds, non- are shown and in the second part, assets are shown. Sharehol~ers d liabilities. current liabilities and current liabilities are brought under eqwty an assets 'fhe Similarly, non-current assets and current assets are brought under specimen of balance sheet of the company is as follows: b