General Instructions for preparing the balance sheet of a company

General Instructions for preparing the balance sheet of a company :

Current Assets :
1. An asset shall be classified as current when it satisfies any of the following criteria:

(a) it is expected to be realized in, or is intended for sale or consumption in, the company’s normal operating cycle;

(b) it is held primarily for the purpose of being traded;

(d) it is Cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting date.

All other assets shall be classified as non-current.”

2. An operating cycle is the time between the acquisition of assets for processing and their realization in Cash or cash equivalents. Where the normal operating cycle cannot be identified, it is assumed to have a duration of 12 months.

3. A liability shall be classified as current when it satisfies any of the following criteria:

(a) it is expected to be settled in the company’s normal operating cycle;

(b) it is held primarily for the purpose of being traded;

(d) the company does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification. All other liabilities shall be classified as non-current.”

4. A receivable shall be classified as a ‘trade receivable’ if it is in respect of the amount due on account of goods
sold or services rendered in the normal course of business.

5. A payable shall be classified as a ‘trade payable’ if it is in respect of the amount due on account due on account of goods purchased or services received in the normal course of business.

6. A company shall disclose the following in the notes to accounts:

A. Share Capital

For each class of share capital (different classes of preference shares to be treated separately) :

(a) the number and amount of shares authorized;

(b) the number of shares issued, subscribed and fully paid, and subscribed but not fully paid;

(d) a reconciliation of the number of shares outstanding at the beginning and at the end of the period;

(e) the rights, preferences and restrictions attaching to that class including restrictions on the distribution of dividends and the repayment of capital;

(f) shares in the company held by its holding company or its ultimate holding company or by its subsidiaries or associates;

(g) shares in the company held by any shareholder holding more than 5 percent shares;

(h) shares reserved for issue under options and contracts/commitments for the sale of shares/disinvestment, including the terms and amounts;

(i) Separate particulars for a period of five years following the year in which the shares have been allotted/ bought back, in respect of:

– Aggregate number and class of shares allotted as fully paid up pursuant to contract(s) without payment being received in cash.

– Aggregate number and class of shares allotted as fully paid up by way of bonus shares (Specify the source from which bonus shares are issued).

– Aggregate number and class of shares bought back.

(j) Terms of any security issued along with the earliest date of conversion in descending order starting from the farthest such date.

B. Reserves and Surplus

(i) Reserves and Surplus shall be classified as:

(a) Capital Reserves;

(b) Capital Redemption Reserves;

(d) Debenture Redemption Reserve;

(e) Revaluation Reserve;

(f) Share Options Outstanding Account:

(g) Other Reserves – (specify the nature of each reserve and the amount in respect thereof);

(h) Surplus i.e. balance in statement of Profit & Loss disclosing allocations and appropriations such as dividend paid, bonus shares and transfer to/from reserves (Additions and deductions since last balance sheet to be shown under each of the specified heads)

(ii) A reserve specifically represented by earmarked investments shall be termed as a ‘fund’.

(iii) Debit balance of Statement of Profit and Loss shall be shown as a negative figure under the head ‘Surplus’ Similarly, the balance of ‘Reserves and Surplus’, after adjusting negative balance of surplus, if any, shall be shown under the head ‘Reserves and Surplus’ even if the resulting figure is in the negative.

C. Long-term Borrowings

(i) Long-term borrowings shall be classified as:

(a) Bonds/debentures

(b) Term loans

– From banks

– From other parties.

(d) Deposits.

(e) Loans and advances from related parties.

(f) Long-term maturities of finance lease obligations

(g) Other loans and advances (specify nature).

(ii) Borrowings shall further be sub-classified as secured and unsecured. Nature of security shall be specified separately in each case.

(iii) Where loans have been guaranteed by directors or others, the aggregate amount of such loans under each head shall be disclosed.

(iv) Bonds/debentures (along with the rate of interest and particulars of redemption or conversion, as the case may be) shall be stated in descending order of maturity or conversion, starting from farthest redemption or conversion date, as the case may be. Where bonds/debentures are redeemable by installments, the date of maturity for this purpose must be reckoned as the date on which the first installment becomes due.

(v) Particulars of any redeemed bonds/debentures which the company has power to reissue.

(vi) Terms of repayment of term loans and other loans shall be stated

(vii) Period and amount of default in repayment of dues, providing break-up of principal and interest shall be specified separately in each case.

D. Other Long-term Liabilities
Other Long-term Liabilities shall be classified as:
(a) Trade payables
(b) Others
E. Long-term provisions
The amounts shall be classified as:
(a) Provision for employee benefits.
(b) Others (specify nature).
F. Short-term borrowings
(i) Short-term borrowings shall be classified as:
(a) Loans repayable on demand
• from banks.
• from other parties.
(b) Loans and advances from subsidiaries/holding company/associates/business ventures.
(c) Deposits.
(d) Other loans and advances (specify nature).
(ii) Borrowings shall further be sub-classified as secured and unsecured. Nature of security shall be specified
separately in each case.
(iii) Where loans have been guaranteed by directors or others, a mention thereof shall be made and also
the aggregate amount of loans under each head.
(iv) Period and amount of default in repayment of dues, providing break-up of principal and interest shall be specified separately in each case.

G. Other current liabilities

The amounts shall be classified as:

(a) Current maturities of long-term debt;

(b) Current maturities of finance lease obligations;

(d) Interest accrued but not due on borrowings;

(e) Interest accrued and due on borrowings;

(f) Unpaid Dividends;

(g) Application money received for allotment of securities and due for refund and interest accrued thereon. Share application money includes advances towards allotment of share capital. The terms & conditions including the number of shares proposed to be issued, the amount of premium, if any, and the period before which shares shall be allotted shall be disclosed. It shall also be disclosed whether the company has sufficient authorized capital to cover the share capital amount resulting from allotment of shares out of such share application money. Further, the period for which the share application money has been pending beyond the period for allotment as mentioned in the document inviting application for shares along with the reason for such share application money being pending shall be disclosed. Share application money not exceeding the issued capital and to the extent not refundable shall be shown under the head Equity and share application money to the extent refundable i.e., the amount in excess of subscription or in case the requirements of minimum subscription are not met, shall be separately shown under ‘Other current liabilities’;

(h) Unpaid matured deposits and interest accrued thereon;
(i) Unpaid matured debentures and interest accrued thereon;
(j) Other payables (specify nature);

H. Short-term provisions
The amounts shall be classified as:

(a) Provision for employee benefits.

(b) Others (specify nature).

I. Tangible assets

(i) Classification shall be given as:

(a) Land.

(b) Buildings.

(d) Furniture and Fixtures.

(e) Vehicles.

(f) Office equipment.

(g) Others (specify nature).

(ii) Assets under lease shall be separately specified under each class of asset.

(iii) A reconciliation of the gross and net carrying amounts of each class of assets at the beginning and end of the reporting period showing additions, disposals, acquisitions and other movements and the related depreciation and impairment losses/reversals shall be disclosed separately.

(iv) Where sums have been written off on a reduction of capital or revaluation of assets or where sums have been added on revaluation of assets, every balance sheet subsequent to date of such write-off, or addition shall show the reduced or increased figures as applicable and shall by way of a note also show the amount of the reduction or increase as applicable together with the date therefore for the first five years subsequent to the date of such reduction or increase.
J. Intangible assets
(i) Classification shall be given as:

(a) Goodwill.

(b) Brands/trademarks.

(d) Mastheads and publishing titles.

(e) Mining rights.

(f) Copyrights, and patents and other intellectual property rights, services and operating rights.

(g) Recipes, formulae, models, designs and prototypes.

(h) Licences and franchise.

(i) Others (specify nature).

(ii) A reconciliation of the gross and net carrying amounts of each class of assets at the beginning and end
of the reporting period showing additions, disposals, acquisitions and other movements and the related
amortization and impairment losses/reversals shall be disclosed separately.
(iiii) Where sums have been written off on a reduction of capital or revaluation of assets or where sums have been added on revaluation of assets, every balance sheet subsequent to date of such write-off, or addition shall show the reduced or increased figures as applicable and shall by way of a note also show the amount of the reduction or increase as applicable together with the date therefor for the first five years subsequent to the date of such reduction or increase.
K. Non-current investments
(i) Non-current investments shall be classified as trade investments and other investments and further
classified as:
(a) Investment property;
(b) Investments in Equity Instruments;
(c) Investments in Preference shares;
(d) Investments in Government or trust securities;
(e) Investments in units, debentures or bonds;
(f) Investments in Mutual Funds;
(g) Investments in partnership firm;
(h) Other non-current investments (specify nature)
Under each classification, details shall be given of names of the bodies corporate (indicating separately whether such bodies are (i) subsidiaries, (ii) associates, (iii) joint ventures, or (iv) controlled special purpose entities) in whom investments have been made and the nature and extent of the investment so made in each such body corporate (showing separately investments which are partly paid). In regard to investments in the capital of partnership firms, the names of the firms (with the names of all their partners, total capital and the shares of each partner) shall be given.

(ii) Investments carried at other than at cost should be separately stated specifying the basis for valuation thereof.

(iii) The following shall also be disclosed:

(a) Aggregate amount of quoted investments and market value thereof;

(b) Aggregate amount of unquoted investments;

(d) Aggregate amount of partly paid-up investments;

(e) The names of bodies corporate (indicating separately the names of subsidiaries, associates and other business ventures) in whose securities, investments have been made and the nature and extent of the investments so made in each such body corporate.

L. Long-term loans and advances
(i) Long-term loans and advances shall be classified as:
(a) Capital Advances;

(b) Security Deposits;

(d) Other Loans and Advances (specify nature).

(ii) The above shall also be separately sub-classified as:

(a) To the extent secured, considered good;

(b) Others, considered good;

(i) Allowance for bad and doubtful loans and advances shall be disclosed under the relevant heads separately.

(ii) Loans and Advances due by directors or other officers of the company or any of them either severally or
jointly with any other persons or amounts due by firms or private companies respectively in which any
director is a partner or a director or a member should be separately stated.
M. Other non-current assets
Other non-current assets shall be classified as:

(i) Long-term Trade Receivables (including trade receivables on deferred credit terms);

(ii) Others (specify nature)

(iii) Long-term Trade Receivables, shall be sub-classified as:

(i) (a) secured, considered good;

(b) unsecured, considered good;
(c) Doubtful

(ii) Allowance for bad and doubtful debts shall be disclosed under the relevant heads separately.

(iii) Debts due by directors or other officers of the company or any of them either severally or jointly with any other person debts due by firms or private companies respectively in which any director is a partner or a director or a member should be separately stated.

N. Current Investments
(i) Current investments shall be classified as:
(a) Investments in Equity Instruments;
(b) Investments in Preference shares;
(c) Investments in Government or trust securities;
(d) Investments in units, debentures or bonds;
(e) Investments in Mutual Funds;
(f) Investments in partnership firm;
(g) Other investments (specify nature)

Under each classification, details shall be given of names of the bodies corporate (indicating separately whether such bodies are (i) subsidiaries, (ii) associates, (iii) joint ventures, or (iv) controlled special purpose entities) in whom investments have been made and the nature and extent of the investment so made in each such body corporate (showing separately investments which are partly paid). In regard to investments in the capital of partnership firms, the names of the firms (with the names of all their partners, total capital and the shares of each partner) shall be given.

(ii) The following shall also be disclosed:

(a) The basis of valuation of individual investments;

(b) Aggregate amount of quoted investments and market value thereof;

(d) Aggregate amount of partly paid-up investments.

(e) Aggregate provision for diminution in value of investments.

O. Inventories
(i) Inventories shall be classified as :
(a) Raw material;
(b) Work-in-progress;
(c) Finished goods;
(d) Stock-in-trade;
(e) Stores and spares;
(f) Loose tools;
(g) Others (specify nature).
(ii) Goods-in-transit shall be disclosed under the relevant sub-head of inventories.
(iii) Mode of valuation should be stated.

P. Trade Receivables
(i) Aggregate amount of Trade Receivables outstanding for a period exceeding six months from the date they are due for payment should be separately stated.

(ii) Trade receivables shall also be classified as:

(a) To the extent secured, considered good;

(b) Others, considered good;

(iii) Allowance for bad and doubtful debts shall be disclosed under the relevant heads separately.

(iv) Debts due by directors or other officers of the company or any of them either severally or jointly with any other person debts due by firms or private companies respectively in which any director is a partner or a director or a member should be separately stated.

Q. Cash and cash equivalents

(i) Classification shall be made as:
(a) Bank balances;
(b) Cheques, drafts on hand;
(c) Cash on hand;
(d) Cash equivalents – short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value;

(e) Others (specify nature).
(ii) Earmarked bank balances (e.g., unpaid dividend) shall be separately stated.
(iii) Balance with banks to the extent held as security against the borrowings, guarantees, other commitments
shall be disclosed separately.
(iv) Repatriation restrictions, if any, in respect of cash and bank balances shall be separately stated.
(v) Bank deposits with more than 12 months maturity shall be disclosed separately.

R. Short-term loans and advances

(i) Short-term loans and advances shall be classified as:
(a) Loans and Advances to Related parties (giving details thereof);
(b) Others (specify nature).
(ii) The above shall also be sub-classified as:
(a) To the extent secured, considered good;
(b) Others, considered good;
(c) Doubtful.
(iii) Allowance for bad and doubtful loans and advances shall be disclosed under the relevant heads
separately.
(iv) Loans and Advances due by directors or other officers of the company or any of them either severally or jointly with any other person debts due by firms or private companies respectively in which any director is a partner or a director or a member should be separately stated.

S. Other current assets (specify nature).
This is an all-inclusive heading, which incorporates current assets that do not fit into any other assets categories.

T. Contingencies and commitments
(to the extent not provided for)
(i) Contingent liabilities shall be classified as:
(a) Claims against the company not acknowledged as debt;
(b) Guarantees;
(c) Other money for which the company is contingently liable
(ii) Commitments shall be classified as:
(a) Estimated amount of contracts remaining to be executed on capital account and not provided for;
(b) Uncalled liability on shares and other investments partly paid;
(c) Other commitments (specify nature).

U. The amount of dividends proposed to be distributed to equity holders for the period and the related amount
per share shall be disclosed separately. Arrears of fixed cumulative dividends shall also be disclosed separately.

V. Where in respect of an issue of securities made for a specific purpose, the whole or part of the amount has not
been used for the specific purpose at the Balance Sheet date, there shall be indicated by way of note how such
unutilized amounts have been used or invested.

W. If, in the opinion of the board, any of the assets other than fixed assets and non-current investments do not
have a value on realization in the ordinary course of business at least equal to the amount at which they are
stated, the fact that the board is of the opinion, shall be stated.

PART II
STATEMENT OF PROFIT AND LOSS

Name of Company ……………………….

Profit and loss Statement for the year ended ……………………….

Rupees in……………………..

i	Revenue from operations
	Other Income
	Total Revenue (1 + II)
	Expenses:
	Cost of materials consumed
	Purchases of Stock-in-Trade
	Changes in inventories of finished goods
	Work-in-progress and Stock-in Trade
	Employee benefits expense
	Finance costs
	Depreciation and amortization expense
	Other expenses
	Total expense
	Profit before exceptional and extraordinary items and tax (III-1V)
	Exceptional items
	Profit before extraordinary items and tax (V-VI)
	Extraordinary items
	Profit before tax (VII-VIII)
	Tax expense:
	(1) Current tax
	(2) Deferred tax
	Profit (Loss) for the period from continuing operations (IX-X-XIV)
	Profit / (Loss) from discontinuing operations
	Tax expense of discontinuing operations
	Profit / (Loss) from discontinuing operations (after tax) (XII-XIII)
	Profit / (Loss) for the period (XI-XIV)
	Earning per equity share:
	(1) Basic
	(2) Diluted

Leave a Reply