The Balance Sheet, Part I of Schedule III
Chapter Forty-Seven
Syllabus topic 6, "Preparation of Balance Sheet Part I of Schedule III"
Pages 145 to 149 of 168
In one line
The Schedule III balance sheet is a vertical statement in two halves, equity and liabilities above and assets below, each classified as current or non-current, with every figure cross-referenced to a note.
The prescribed form
Part I of Schedule III sets the heading exactly.
Name of the Company Balance Sheet as at .... (Rupees in ....)
Four columns: Particulars, Note No., figures as at the end of the current reporting period, figures as at the end of the previous reporting period.
I. EQUITY AND LIABILITIES
| Head | Sub-heads | |
|---|---|---|
| (1) | Shareholders' funds | (a) Share capital; (b) Reserves and surplus; (c) Money received against share warrants |
| (2) | Share application money pending allotment | No sub-heads |
| (3) | Non-current liabilities | (a) Long-term borrowings; (b) Deferred tax liabilities (net); (c) Other long-term liabilities; (d) Long-term provisions |
| (4) | Current liabilities | (a) Short-term borrowings; (b) Trade payables, split into total outstanding dues of micro and small enterprises and dues of other creditors; (c) Other current liabilities; (d) Short-term provisions |
| TOTAL |
II. ASSETS
| Head | Sub-heads | |
|---|---|---|
| (1) | Non-current assets | (a) Property, plant and equipment and intangible assets, itemised as (i) property, plant and equipment, (ii) intangible assets, (iii) capital work-in-progress, (iv) intangible assets under development; (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 |
And under it, the line the Schedule itself prints: See accompanying notes to the financial statements.
Reproduce that heading and those two TOTALs in every answer. Marks are given for the form, and the form includes the words "as at", the Note No. column and the previous-period column.
Head by head, on the equity and liabilities side
Share capital. The face carries one figure. The note carries the detail, and Schedule III lists it for each class of share capital, preference classes treated separately: the number and amount authorised; the number issued, subscribed and fully paid, and subscribed but not fully paid; par value per share; a reconciliation of the number of shares outstanding at the beginning and the end; the rights, preferences and restrictions; shares held by the holding company; shares held by each shareholder holding more than five per cent; shares reserved under options; for the five preceding years, shares allotted without payment being received in cash, bonus shares, and shares bought back; terms of convertible securities; calls unpaid, showing separately those unpaid by directors and officers; forfeited shares, at the amount originally paid up; and the shareholding of promoters with the percentage change during the year.
The Balance Sheet, Part I of Schedule III
Reserves and surplus. The Schedule classifies it, and this list is examinable in itself:
- Capital reserves;
- Capital redemption reserve;
- Securities premium;
- Debenture redemption reserve;
- Revaluation reserve;
- Share options outstanding account;
- Other reserves, specifying the nature and purpose of each; and
- Surplus, the balance in the statement of profit and loss, disclosing allocations and appropriations such as dividend, bonus shares and transfers to and from reserves.
Additions and deductions since the last balance sheet are shown under each head.
Two rules attached to it. A reserve specifically represented by earmarked investments shall be termed a fund. And a debit balance in the statement of profit and loss shall be shown as a negative figure under Surplus, with the total of reserves and surplus shown under that head even if the resulting figure is negative.
That second rule ends an old practice. A debit balance in profit and loss does not go on the asset side as a fictitious asset. It is a negative figure inside reserves and surplus. Examiners test it, and a student who puts accumulated losses among the assets has answered under the wrong Act.
Long-term borrowings. Classified as bonds and debentures; term loans from banks and from other parties; deferred payment liabilities; deposits; loans and advances from related parties; long-term maturities of finance lease obligations; and other loans and advances.
They are further sub-classified as secured and unsecured, with the nature of security specified in each case; loans guaranteed by directors or others are disclosed in aggregate under each head; bonds and debentures are stated in descending order of maturity, with the rate of interest and particulars of redemption; terms of repayment are stated; and any continuing default in repayment of loans and interest is specified separately with its period and amount.
Other long-term liabilities are classified as trade payables and others; long-term provisions as provision for employee benefits and others.
Short-term borrowings. Classified as loans repayable on demand from banks and from other parties; loans and advances from related parties; deposits; and other loans and advances. Secured and unsecured again, with the nature of security, guarantees by directors, and defaults. And instruction (v): current maturities of long-term borrowings shall be disclosed separately.
Other current liabilities. Classified as current maturities of finance lease obligations; interest accrued but not due on borrowings; interest accrued and due on borrowings; income received in advance; unpaid dividends; application money received for allotment and due for refund, with interest; unpaid matured deposits and interest; unpaid matured debentures and interest; and other payables.
The Balance Sheet, Part I of Schedule III
The interest split is the fine point. Interest accrued but not due and interest accrued and due are separate lines, because the second is a debt the lender may demand today.
Short-term provisions. Provision for employee benefits, and others.
Head by head, on the asset side
Property, plant and equipment. Disclosed by class, with a reconciliation of the gross and net carrying amounts at the beginning and end of the period, showing additions, disposals, acquisitions through business combinations and other adjustments, and the related depreciation and impairment losses. Intangible assets are disclosed on the same pattern with amortisation.
Non-current investments. Classified as trade and other investments, and within them as investments in property, in equity instruments, in preference shares, in government or trust securities, in debentures or bonds, in mutual funds, in partnership firms and other non-current investments, each showing whether quoted or unquoted, with the aggregate amount of quoted investments and their market value, the aggregate of unquoted investments, and the aggregate provision for diminution in value.
Long-term loans and advances are classified as capital advances, security deposits, loans and advances to related parties and other loans and advances, and shown as secured considered good, unsecured considered good and doubtful, with the allowance for bad and doubtful debts and any amounts due from directors or officers disclosed.
Inventories. Classified as raw materials, work-in-progress, finished goods, stock-in-trade, stores and spares, loose tools and others, with goods in transit disclosed separately under the relevant sub-head, and the mode of valuation stated.
The mode of valuation is a disclosure requirement, not a nicety. A note that says "at cost or net realisable value, whichever is lower" is what Schedule III asks for.
Trade receivables. Shown separately for those outstanding for a period exceeding six months from the date they became due for payment and others, each as secured considered good, unsecured considered good and doubtful, with the allowance for bad and doubtful debts, and debts due from directors or officers disclosed separately.
Cash and cash equivalents. Classified as balances with banks, cheques and drafts on hand, cash on hand and others, with earmarked balances such as unpaid dividend accounts, balances held as margin money or security against borrowings, repatriation restrictions, bank deposits with more than twelve months maturity, and the position of deposits with more than three months maturity disclosed separately.
Short-term loans and advances follow the pattern of the long-term ones; other current assets are specified by nature.
What sits below the totals
Contingent liabilities and commitments, to the extent not provided for. Head T of the notes, and the classification is prescribed.
The Balance Sheet, Part I of Schedule III
| Contingent liabilities | Commitments |
|---|---|
| Claims against the company not acknowledged as debt | Estimated amount of contracts remaining to be executed on capital account and not provided for |
| Guarantees | Uncalled liability on shares and other investments partly paid |
| Other money for which the company is contingently liable | Other commitments, specifying the nature |
They are not liabilities and they are not in the totals. They are disclosed because a reader who did not know of them would misjudge the company.
Proposed dividends. Head U: the amount proposed to be distributed to equity and preference shareholders for the period and the amount per share shall be disclosed separately, and arrears of fixed cumulative dividends on preference shares disclosed separately as well.
Unutilised issue proceeds. Head V: where securities were issued for a specific purpose and the whole or part of the amount has not been so used at the balance sheet date, a note shall indicate how the unutilised amount has been used or invested. Head VA extends the same to borrowings from banks and financial institutions not used for the purpose for which they were taken.
The Board's opinion on realisable value. Head W: if in the Board's opinion any asset other than property, plant and equipment, intangible assets and non-current investments does not have a realisable value in the ordinary course of business at least equal to the amount at which it is stated, the fact that the Board is of that opinion shall be stated.
The commonest presentation errors
| Error | The rule it breaks |
|---|---|
| Drawing the balance sheet in T form, liabilities left and assets right | Schedule III's format is vertical, in two halves |
| Showing the debit balance of profit and loss on the asset side | It is a negative figure under Surplus |
| Omitting the Note No. column | It is column 2 of the prescribed form; instruction 3(ii) requires cross-referencing |
| Omitting the previous period column | General instruction 5, except for the first statements after incorporation |
| Putting the whole of a term loan under non-current liabilities | Current maturities are disclosed separately as current |
| Showing proposed dividend as a liability on the face | It is a disclosure under head U |
| Writing "Sundry debtors" and "Sundry creditors" | The Schedule's heads are trade receivables and trade payables |
| Writing "Fixed assets" | The head has been property, plant and equipment since 2018 |
The last two cost marks silently. The figures are right, the labels are from a previous Act, and the examiner is marking against Schedule III.
What to write in the exam
If asked to give the format, draw the four-column heading, the two halves with their eight groups and their sub-heads, and both TOTAL lines. Do not put figures in it unless the question gives them.
The Balance Sheet, Part I of Schedule III
If asked to prepare a balance sheet from a trial balance, classify first, then place, then total, then write the notes. The chapter on the worked problem does it end to end.
The line to remember
The face of the balance sheet carries a dozen figures; the notes carry the company. Schedule III is built that way on purpose, and instruction 3(ii) is the thread that ties the two together.
The rest of this subject
These notes are cut from the University's printed syllabus. Open the syllabus itself, or the past papers, for the same subject.