Page 315 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Accounting for Companies-I

Notes
Example 1: A company ABC Ltd. is a non-banking financial company. During the financial
year 2009-2010 the company made some expenditure and earned revenue from its business
activities. The company took a loan of ` 100 crore from a bank for its new project during the
same year. In the financial year 2008-2009 the company earned a good amount of profit so the
company decides to hike the salary of its staff by 5% from the financial year 2009-2010. At the end
of the financial year 2009-2010 the company wants to calculate its net earnings/losses and
financial position. The accounts which are prepared to know the net profit/loss and financial
position of the business are called final accounts.

In the present unit, you will study about the final accounts of the company. After studying this
unit, you should be able to understand the preparation of profit & loss account and balance sheet
of the company. The unit also discussed about the requirements of Schedule VI concerning the
P&L a/c and balance sheet. Financial statements of companies mean: (i) Profit and Loss Account,
and (ii) Balance Sheet. According to Section 209 of the Indian Companies Act, 1956, it is
compulsory for each and every company to prepare its profit and loss account as well as Balance
Sheet. It is also essential to maintain both the accounts in a proper form which is given in the
Schedule VI Parts I and II of the Companies Act.
13.1 Meaning

To prepare final account by the sole trader or partnership firm is not a statutory obligation. But
as per Section 210 of the Companies Act, it is compulsory for every registered company to
prepare the final accounts. Final account of company includes Profit and Loss A/c, and Balance
Sheet. Profit and Loss Account is a combined account of Trading Account Profit and Loss Account
and Profit and Loss Appropriation Account. The general principles of preparing sheet of a
company are the same as used in the case sole trader or partnership firm. But in addition to these
principles, a company must conform to legal provisions in the Indian Companies Act, 1956
relating to the preparation of final accounts. The provision relating to the maintenance,
publication, form and contents of final accounts are given in the Sections 209 to 233 of the
Companies Act, 1956. A brief description of these sections is given below:
As per Section 209 of Indian Companies Act 1956, a company has to keep proper accounts
regarding (i) all receipts and disbursements of money (ii) all sales and purchases of goods (iii)
all assets and liabilities (iv) particulars relating to the utilization of material and labour, etc. (in
case of a manufacturing concern).

Section 210 is relating with the preparation and presentation of final account of a company. As
per this section-
1. “At every annual general meeting of company held in pursuance of Section 166, the Board
of Directors of the Company shall lay before the company:

(i) The balance sheet as at the end of the period specified in sub-section (3) and
(ii) A profit and loss account of that period.
2. In case of a company not carrying on business for profit, an income and expenditure
account shall be laid before the company at its annual general meeting instead of profit
and loss account, and all references to ‘profit and loss’ in this section and elsewhere in this
Act, shall be construed, in relation to such a company, as reference respectively to the
‘income and expenditure account’, and the ‘excess of expenditure over income’.
3. The profit and loss account shall relate to–
(i) The meeting of a company, to the period beginning with the incorporation of the
company and ending with a day which shall not precede the day of meeting by more
than nine months, and

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