Practice Questions: Company Accounts

1. Authorised share capital
2. Securities premium
3. Debit balance in the statement of profit and loss
4. Calls unpaid by directors
5. Estimated amount of contracts remaining to be executed on capital account

(c) Answer in one sentence each. (5)

1. For how many financial years must the books of account be preserved, and under which section?
2. How many days before the general meeting must the financial statements reach a member?
3. Within how many days of the annual general meeting must the statements be filed with the Registrar?
4. Who prescribes the accounting standards, and on whose recommendation?
5. Why is a proposed dividend not shown as a current liability?

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Answers

Answer 1

Working note 1: cost of materials consumed.

Carriage inward belongs here, not in other expenses. It is a cost of bringing the material in, and Schedule III has no separate carriage line.

Working note 2: changes in inventories of finished goods.

Only the finished goods appear here. The raw material movement has already been taken into the cost of materials consumed, and putting it in both places would count it twice.

Working note 3: depreciation.

Working note 4: term loan interest.

Working note 5: provision for doubtful debts.

Working note 6: other expenses.

Pragati Manufacturers Ltd Statement of profit and loss for the year ended 31 March 2027

Pragati Manufacturers Ltd Balance sheet as at 31 March 2027

See accompanying notes to the financial statements.

Note 1: Share capital

Note 2: Reserves and surplus

Note 3: Long-term borrowings

Note 4: Trade payables

Note 5: Other current liabilities

Note 6: Short-term provisions

Note 7: Property, plant and equipment

Note 8: Inventories, valued at cost, being lower than net realisable value

Note 9: Trade receivables

Note 10: Cash and cash equivalents

Note 11: Revenue from operations

Note 12: Other income

Notes 13 and 14 are working notes 1 and 2 above, being the cost of materials consumed of Rs 4,80,000 and the change in inventories of finished goods of Rs 30,000 as a reduction of expense.

Note 15: Employee benefits expense

Note 16: Finance costs

Note 17 is working note 6, other expenses of Rs 1,23,000.

Note 18: Other current assets

Note 19: Proposed dividend, disclosed under head U of Schedule III

The amount per share is Rs 1.20. It is disclosed and not provided for, because the members have not declared it.

The proof: the two halves both come to Rs 11,16,000.

Answer 2

(a) The statutory books and registers

Four of them, in detail.

The register of members, section 88(1)(a), is kept at the registered office under section 94(1), or at another place in India where more than one-tenth of the members reside if a special resolution so approves. Any member, debenture-holder, other security holder or beneficial owner may inspect it during business hours without fee, and any other person on payment of the prescribed fee.

The register of charges, section 85(1), is kept at the registered office with a copy of every instrument creating a charge. Any member or creditor may inspect it free, and any other person on payment of a fee, subject to reasonable restrictions in the articles.

The register of directors and key managerial personnel, section 170(1), is kept at the registered office. Under section 171 the members may inspect it during business hours, take extracts, and be given copies free of cost within thirty days, and it must be kept open at every annual general meeting.

The minute books of general meetings, section 118(1), are kept at the registered office under section 119(1)(a) and are open to inspection by any member without charge, for not less than two hours in each business day, with copies within seven working days on payment of the prescribed fee. Board minutes are not open to members.

(b) Section 129

Sub-section (1) requires the financial statements to give a true and fair view of the state of affairs, to comply with the accounting standards notified under section 133, and to be in the form provided in Schedule III. The first proviso requires the items in them to be in accordance with the standards. The second proviso takes out insurance companies, banking companies, companies generating or supplying electricity and any class for which another Act prescribes a form, and the third proviso says their statements are not to be treated as failing the true and fair test merely because they omit what their own statutes do not require.

Sub-section (2) requires the Board to lay the financial statements before every annual general meeting.

Sub-section (3) requires a company with subsidiaries or associates to prepare a consolidated financial statement in the same form and lay it before the meeting along with its own, attaching a statement of the salient features of each subsidiary and associate. Sub-section (4) applies the rules on preparation, adoption and audit of a holding company's statements to the consolidated statements.

Sub-section (5) requires a company that does not comply with the standards to disclose the deviation, the reasons for it and its financial effects.

Sub-section (6) lets the Central Government exempt classes of companies in the public interest.

Sub-section (7) punishes default by the managing director, the whole-time director in charge of finance, the Chief Financial Officer or the person charged by the Board, and in their absence all the directors, with imprisonment up to one year or a fine of fifty thousand to five lakh rupees, or both.

The Explanation provides that a reference to the financial statement includes the notes annexed to or forming part of it.

Answer 3

(a) Current or non-current

Items two and three are one loan split in two, and Schedule III requires the current maturity of a long-term borrowing to be disclosed separately.

(b) Where each appears

(c) One sentence each

1. Eight financial years immediately preceding, together with the vouchers, under section 128(5), and longer if the Central Government so directs during an investigation.

2. Not less than twenty-one days before the meeting, under section 136(1), unless members holding ninety-five per cent of the voting capital agree to shorter notice.

3. Within thirty days of the annual general meeting, under section 137(1).

4. The Central Government prescribes them, on the recommendation of the Institute of Chartered Accountants of India, in consultation with the National Financial Reporting Authority, under section 133.

5. Because a proposed dividend is not an obligation until the members declare it, so Schedule III requires it to be disclosed under head U rather than recognised among current liabilities.

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