Page 325 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Accounting for Companies-I

Notes (v) Sinking Fund
(vi) Surplus of Profit and Loss A/c.
Increase and decrease in the above reserves during the previous year should be shown
clearly. There is a difference between reserve and fund. When a reserve is invested in the
outside investment, that reserve is called fund.
3. Secured Loans: The loans which are secured against some tangible assets of the company
are called secured loans. If some secured loans are taken by directors, managing directors
and manager, those should be shown separately. Debentures are always secured because
they have floating charge or fixed charge on the assets of the company. Therefore these are
shown under this heading. If the company has taken a secured loans from a bank or
subsidiary company etc. that also should be disclosed under this heading. The nature of
security of the loan should also be given in each case. Interest accrued and due on the
secured loans is also shown under this head, but interest accrued but not due is not shown
here. Interest accrued but due is shown under current liabilities of this side of the balance
sheet. If the loans have been guaranteed by the manager or directors, this fact should also
mentioned in the Balance Sheet.

4. Unsecured Loans: The loans which do not carry any charge an the assets are called unsecured
loans. Fixed deposits and loans and advances from banks are included in the unsecured
loans. Unsecured loans are divided into two – (i) Long-term loans (ii) Short-term loans.
Loans which are taken for one year or less than one year, are called short-term loans. The
loans for more than one year are called long-term loans. Long-term loans and short-term
loans are shown separately; loans given by directors or manager should be shown
separately. ‘Interest accrued and due’ should be shown with the respective loans but
“interest accrued and not due” is shown in the current liabilities.
5. Current Liabilities & Provision: The following two sub-headings are included under this
head-
(a) Current liabilities; and
(b) Provision

Current liabilities are those which are payable within one year. These liabilities include
Bills Payable, Sundry Creditors, Advance Payments, Unclaimed Dividend etc. All these
are shown separately. In part (b) of this heading, Provision for Taxation, Proposed
Dividends, Provision for Contingencies. Provision for Employees Provident Fund and
Insurance Plans are shown separately.

13.4 Profit and Loss Account

Any standard form of profit and loss account or income statement is not prescribed in the
Companies Act, 1956. In the case of a company only one account (known as Profit and Loss A/c),
is maintained to calculate profit or loss. This account is divided into three parts. Its first part
contains all items of trading account, the second part profit and loss account and the third part
profit and loss appropriation account. As per Section 211(2) in every profit and loss account a
company shall give true and fair view of the profit and loss of the company for the financial year
and comply with the requirement of Part II of Schedule VI so far as they are applicable thereto
and disclose information accordingly. The requirement of this part does not apply to banking,
insurance and electricity-supplying companies as the forms of profit and loss account of these
companies are specified in the separate Acts governing such class of companies.

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