Financial Statements of a Company
Schedule III Formats Made Easy
The foundation chapter of Part B. Learn the exact Schedule III format of the Balance Sheet and Statement of Profit and Loss, every major heading and sub-heading, and master the most repeated board exam question: “Under which head and sub-head will you show this item?” — with solved classification tables, 40 MCQs, and a 40-question live quiz built on board exam patterns.
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40Quiz Qs
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📌 The Big Picture
Welcome to Part B: From Recording to Analysing
In Part A you learned how to record transactions — partnership accounts, shares, and debentures. Part B is about reading and analysing what a company has recorded. Before you can analyse financial statements, you must know exactly what they look like. This chapter teaches the prescribed formats under Schedule III of the Companies Act, 2013 — the single most important reference for the entire Part B.
1. Financial Statements — Meaning, Features and Nature
Financial statements are the formal, structured reports prepared at the end of an accounting period that summarise the financial performance and financial position of a business. For a company, they are the primary means of communicating financial information to shareholders, creditors, government, and the public.
As per Section 2(40) of the Companies Act, 2013, financial statements of a company include:
1
Balance Sheet
Shows the financial position — assets, liabilities, and shareholders' funds — as at the end of the period.
2
Statement of Profit and Loss
Shows the financial performance — revenues, expenses, and profit or loss — for the period.
3
Cash Flow Statement
Shows the inflows and outflows of cash under Operating, Investing and Financing activities.
4
Notes to Accounts
Explanatory notes and detailed break-ups of items appearing in the above statements.
Nature of Financial Statements
Financial statements are a blend of three things:
| Element | Explanation |
|---|---|
| Recorded Facts | Figures are taken from accounting records — actual transactions recorded at historical cost (original cost), not current market value. |
| Accounting Conventions | Conventions like conservatism (prudence) are applied — e.g., stock valued at cost or market price, whichever is lower. |
| Personal Judgements | Estimates like the rate of depreciation, provision for doubtful debts, and useful life of assets depend on the judgement of the management. |
2. Contents of Financial Statements as per Companies Act, 2013
Section 129 of the Companies Act, 2013 requires that financial statements must: (i) give a true and fair view of the state of affairs of the company, (ii) comply with the Accounting Standards notified under Section 133, and (iii) be prepared in the form provided in Schedule III of the Act.
🎯 Board Exam Point: The prescribed format authority is Schedule III, Companies Act 2013 (earlier it was Schedule VI of the Companies Act 1956). Part I of Schedule III gives the Balance Sheet format; Part II gives the Statement of Profit and Loss format.
3. Balance Sheet of a Company — Prescribed Form (Schedule III, Part I)
The company Balance Sheet is prepared in vertical format with two main divisions: I. Equity and Liabilities and II. Assets. Every item must appear under its correct major heading and sub-heading. Here is the complete skeleton:
| S.No. | Particulars | Note No. | Figures (Current Yr) |
|---|---|---|---|
| I. | EQUITY AND LIABILITIES | ||
| 1. | Shareholders' Funds (a) Share Capital (b) Reserves and Surplus (c) Money Received Against Share Warrants | ||
| 2. | Share Application Money Pending Allotment | ||
| 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 (c) Other Current Liabilities (d) Short-term Provisions | ||
| TOTAL | |||
| II. | ASSETS | ||
| 1. | Non-Current Assets (a) Fixed Assets: (i) Tangible Assets (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 |
⚠ Memorise this skeleton completely. The board asks direct questions like “Name the major headings on the Equity and Liabilities side” (4 headings: Shareholders’ Funds, Share Application Money Pending Allotment, Non-Current Liabilities, Current Liabilities) and “Name the sub-headings under Current Assets” (6 sub-headings, in the exact order above).
What Makes a Liability “Current”? What Makes an Asset “Current”?
| Current Liability (any ONE condition) | Current Asset (any ONE condition) |
|---|---|
| Expected to be settled in the company's normal operating cycle | Expected to be realised in the normal operating cycle |
| Due to be settled within 12 months of the reporting date | Expected to be realised within 12 months of the reporting date |
| Held primarily for the purpose of being traded | Held primarily for the purpose of being traded |
| No unconditional right to defer settlement beyond 12 months | It is cash or a cash equivalent |
Operating cycle = the time between the acquisition of assets for processing and their realisation into cash. If the operating cycle cannot be identified, it is assumed to be 12 months.
4. Major Headings and Sub-headings Explained (with Examples)
This is the most exam-important section. Below is the classification of common items — the exact answer format you should write in the board exam: Item → Major Head → Sub-head.
Equity and Liabilities Side:
| Item | Major Head | Sub-head |
|---|---|---|
| Equity Share Capital / Preference Share Capital | Shareholders' Funds | Share Capital |
| Securities Premium Reserve | Shareholders' Funds | Reserves and Surplus |
| General Reserve / Capital Reserve | Shareholders' Funds | Reserves and Surplus |
| Surplus i.e. Balance in Statement of P&L | Shareholders' Funds | Reserves and Surplus |
| Debentures (redeemable after 12 months) | Non-Current Liabilities | Long-term Borrowings |
| Bank Loan (repayable after 12 months) | Non-Current Liabilities | Long-term Borrowings |
| Public Deposits | Non-Current Liabilities | Long-term Borrowings |
| Premium on Redemption of Debentures | Non-Current Liabilities | Other Long-term Liabilities |
| Provision for Employee Benefits (beyond 12 months) / Provision for Gratuity | Non-Current Liabilities | Long-term Provisions |
| Bank Overdraft / Cash Credit | Current Liabilities | Short-term Borrowings |
| Creditors / Bills Payable | Current Liabilities | Trade Payables |
| Outstanding Expenses / Unclaimed Dividend | Current Liabilities | Other Current Liabilities |
| Calls-in-Advance / Interest Accrued on Borrowings | Current Liabilities | Other Current Liabilities |
| Current Maturities of Long-term Debt | Current Liabilities | Other Current Liabilities |
| Provision for Tax / Proposed Dividend (current year) | Current Liabilities | Short-term Provisions |
Assets Side:
| Item | Major Head | Sub-head |
|---|---|---|
| Land and Building / Plant and Machinery / Furniture / Vehicles | Non-Current Assets | Fixed Assets — Tangible Assets |
| Goodwill / Patents / Trademarks / Computer Software / Copyright | Non-Current Assets | Fixed Assets — Intangible Assets |
| Building Under Construction | Non-Current Assets | Fixed Assets — Capital Work-in-Progress |
| Patents Under Development | Non-Current Assets | Fixed Assets — Intangible Assets Under Development |
| Investment in Shares/Debentures (held beyond 12 months) | Non-Current Assets | Non-Current Investments |
| Capital Advances / Security Deposits (long-term) | Non-Current Assets | Long-term Loans and Advances |
| Investments held for less than 12 months | Current Assets | Current Investments |
| Stock / Raw Materials / Work-in-Progress / Finished Goods / Stores and Spares / Loose Tools | Current Assets | Inventories |
| Debtors / Bills Receivable | Current Assets | Trade Receivables |
| Cash in Hand / Cash at Bank / Cheques in Hand | Current Assets | Cash and Cash Equivalents |
| Advances to Suppliers (short-term) | Current Assets | Short-term Loans and Advances |
| Prepaid Expenses / Accrued Income / Interest Receivable | Current Assets | Other Current Assets |
🎯 Board Exam Trap Items (asked repeatedly): (1) Bank Overdraft → Short-term Borrowings (NOT Cash and Cash Equivalents with negative sign). (2) Loose Tools and Stores & Spares → Inventories. (3) Goodwill → Intangible Assets (NOT a separate heading). (4) Calls-in-Advance → Other Current Liabilities (NOT Share Capital). (5) Unclaimed Dividend → Other Current Liabilities.
📈 Solved Classification 1 — Board Pattern Question
Question (Board 2023 pattern): Under which major head and sub-head will the following items appear in the Balance Sheet of a company as per Schedule III: (i) Debentures redeemable after 3 years, (ii) Loose Tools, (iii) Calls-in-Advance, (iv) Goodwill, (v) Unclaimed Dividend, (vi) Cheques in Hand?
| Item | Major Head | Sub-head |
|---|---|---|
| (i) Debentures (redeemable after 3 years) | Non-Current Liabilities | Long-term Borrowings |
| (ii) Loose Tools | Current Assets | Inventories |
| (iii) Calls-in-Advance | Current Liabilities | Other Current Liabilities |
| (iv) Goodwill | Non-Current Assets | Fixed Assets — Intangible Assets |
| (v) Unclaimed Dividend | Current Liabilities | Other Current Liabilities |
| (vi) Cheques in Hand | Current Assets | Cash and Cash Equivalents |
5. Statement of Profit and Loss (Schedule III, Part II)
The Statement of Profit and Loss is also prepared in vertical format. It flows from Revenue at the top to Profit after Tax at the bottom:
| S.No. | Particulars | Note No. | Current Yr (₹) |
|---|---|---|---|
| I. | Revenue from Operations | ✕✕ | |
| II. | Other Income | ✕✕ | |
| III. | Total Revenue (I + II) | ✕✕ | |
| IV. | Expenses: (a) Cost of Materials Consumed (b) Purchases of Stock-in-Trade (c) Changes in Inventories of Finished Goods, WIP and Stock-in-Trade (d) Employee Benefit Expenses (e) Finance Costs (f) Depreciation and Amortisation Expenses (g) Other Expenses | ✕✕ | |
| V. | Profit Before Tax (III − IV) | ✕✕ | |
| VI. | Less: Tax | (✕✕) | |
| VII. | Profit After Tax (V − VI) | ✕✕ |
⚠ Syllabus Note: Exceptional Items, Extraordinary Items, and Profit/Loss from Discontinued Operations are excluded from the CBSE syllabus. Do not include them in your answers.
6. Meaning of Terms Used in the Statement of Profit and Loss
| Term | Meaning with Example |
|---|---|
| Revenue from Operations | Revenue earned from the company's main business activities. For a manufacturing company: Sale of Products. For a finance company: Interest and Dividend earned. Example: For Tata Motors, revenue from selling vehicles. |
| Other Income | Income NOT from the main business. Examples: interest on investments (for a non-finance company), dividend received, profit on sale of fixed assets, rent received. |
| Cost of Materials Consumed | Raw materials used during the year = Opening Stock of Raw Materials + Purchases of Raw Materials − Closing Stock of Raw Materials. Applies to manufacturing companies. |
| Purchases of Stock-in-Trade | Goods bought for resale without any processing (for trading companies). |
| Changes in Inventories | Opening Inventory − Closing Inventory (of finished goods, WIP and stock-in-trade). A positive figure increases expenses; a negative figure (closing more than opening) decreases expenses. |
| Employee Benefit Expenses | Wages, salaries, bonus, staff welfare, contribution to provident fund, gratuity paid to employees. |
| Finance Costs | Costs of borrowing: interest on debentures, interest on loans, discount/loss on issue of debentures written off. NOT bank charges (those are Other Expenses). |
| Depreciation and Amortisation | Depreciation = reduction in value of tangible assets. Amortisation = writing off intangible assets (patents, goodwill). |
| Other Expenses | All remaining expenses: rent, telephone, carriage, audit fees, bad debts, loss on sale of assets, bank charges. |
🎯 Board Trap: Interest on debentures → Finance Costs. Bank charges → Other Expenses. Depreciation → its own line (d+f), never in Other Expenses. These three classifications are repeatedly tested.
7. Objectives of Financial Statements
1
Present True and Fair View
Show the true financial performance (profit or loss) and the true financial position (assets and liabilities) of the business.
2
Help Judge Earning Capacity
Enable users to assess the profit-earning capacity and future growth prospects of the company.
3
Help Judge Solvency
Help creditors and lenders judge whether the company can pay its short-term and long-term debts on time.
4
Facilitate Comparison
Allow comparison with previous years (intra-firm) and with other companies (inter-firm).
5
Basis for Decisions
Provide reliable information for investment, credit, and management decisions, and for calculating taxes and dividends.
6
Statutory Compliance
Fulfil the legal requirement under the Companies Act, 2013 and provide information to regulators like SEBI and the Income Tax Department.
8. Users of Financial Statements
| Category | User | What They Look For |
|---|---|---|
| Internal Users | Owners / Shareholders | Return on investment, safety of capital, dividend prospects |
| Management | Data for planning, decision-making, and controlling operations | |
| Employees and Workers | Job security, bonus prospects, company stability | |
| Board of Directors | Overall performance review and strategy | |
| External Users | Investors (potential) | Whether to invest; earning capacity and growth |
| Creditors and Suppliers | Short-term solvency; ability to pay dues on time | |
| Banks and Lenders | Long-term solvency; security of loans; repayment capacity | |
| Government and Tax Authorities | Tax computation; regulation; statistics | |
| Researchers and Analysts | Industry analysis, credit rating, stock recommendations | |
| Public and Consumers | Employment prospects, corporate social responsibility |
9. Limitations of Financial Statements
1
Historical in Nature
They show past data at historical cost. Current market values and future prospects are not reflected.
2
Ignore Qualitative Aspects
Only money-measurable items are recorded. Employee skill, management quality, customer loyalty, and brand reputation are ignored.
3
Affected by Personal Judgement
Depreciation rates, provisions, and stock valuation depend on estimates — different accountants may show different profits for the same business.
4
Ignore Price Level Changes
Inflation is not adjusted. An asset bought years ago appears at old cost, making comparisons misleading.
5
Window Dressing Possible
Management may manipulate figures to show a better position than reality (window dressing), misleading users.
6
Not Fully Comparable
Different companies use different accounting policies (e.g., depreciation methods), making inter-firm comparison difficult.
📈 Solved Classification 2 — Statement of P&L Items (Board Pattern)
Question: Under which line item of the Statement of Profit and Loss will you show: (i) Interest on Debentures, (ii) Salaries and Wages, (iii) Depreciation on Machinery, (iv) Carriage Outwards, (v) Dividend Received, (vi) Loss on Issue of Debentures written off?
| Item | Line Item in Statement of P&L |
|---|---|
| (i) Interest on Debentures | Finance Costs |
| (ii) Salaries and Wages | Employee Benefit Expenses |
| (iii) Depreciation on Machinery | Depreciation and Amortisation Expenses |
| (iv) Carriage Outwards | Other Expenses |
| (v) Dividend Received | Other Income |
| (vi) Loss on Issue of Debentures written off | Finance Costs |
⚡ Quick Recall — Financial Statements of a Company
Financial statements include Balance Sheet, Statement of P&L, Cash Flow Statement, and Notes to Accounts (Section 2(40), Companies Act 2013).
Format authority: Schedule III of Companies Act 2013 — Part I for Balance Sheet, Part II for Statement of P&L.
Equity and Liabilities side has 4 major heads: Shareholders' Funds, Share Application Money Pending Allotment, Non-Current Liabilities, Current Liabilities.
Assets side has 2 major heads: Non-Current Assets and Current Assets.
Current = settled/realised within 12 months or the operating cycle. Default operating cycle = 12 months.
Bank Overdraft = Short-term Borrowings. Loose Tools and Stores = Inventories. Goodwill = Intangible Assets. Calls-in-Advance and Unclaimed Dividend = Other Current Liabilities.
P&L flow: Revenue from Operations + Other Income = Total Revenue; minus Expenses = Profit Before Tax; minus Tax = Profit After Tax.
Interest on debentures = Finance Costs. Salaries and wages = Employee Benefit Expenses. Bank charges = Other Expenses.
Nature of financial statements: recorded facts + accounting conventions + personal judgements.
Key limitations: historical cost, qualitative aspects ignored, personal judgement, price-level changes ignored, window dressing possible.
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40 MCQs — Financial Statements of a Company
Q 1–20: Theory and concepts. Q 21–40: Classification questions in the exact board exam pattern (“under which head and sub-head”). Answers with explanations below each question.
📚 Section B1 — Theory and Concepts (Q 1–20)
1
As per Section 2(40) of the Companies Act, 2013, financial statements do NOT include:
ABalance Sheet
BStatement of Profit and Loss
CDirectors' Report
DCash Flow Statement
Answer: C. Financial statements include the Balance Sheet, Statement of P&L, Cash Flow Statement, and Notes to Accounts. The Directors' Report is a separate document, not part of financial statements.
2
The prescribed format of a company's Balance Sheet is given in:
ASchedule VI, Companies Act 1956
BSchedule III Part I, Companies Act 2013
CSchedule III Part II, Companies Act 2013
DSchedule II, Companies Act 2013
Answer: B. Schedule III of the Companies Act, 2013 — Part I gives the Balance Sheet format and Part II gives the Statement of Profit and Loss format.
3
The company Balance Sheet as per Schedule III is prepared in:
AHorizontal format only
BVertical format only
CEither horizontal or vertical format
DT-shape format
Answer: B. Schedule III prescribes only the vertical format — Equity and Liabilities on top, Assets below.
4
How many major heads appear on the Equity and Liabilities side of the Balance Sheet?
A2
B3
C4
D6
Answer: C — 4 heads: (1) Shareholders' Funds, (2) Share Application Money Pending Allotment, (3) Non-Current Liabilities, (4) Current Liabilities.
5
If the operating cycle of a company cannot be identified, it is assumed to be:
A6 months
B12 months
C18 months
D24 months
Answer: B. When the normal operating cycle cannot be identified, it is assumed to have a duration of 12 months.
6
The nature of financial statements involves recorded facts, accounting conventions, and:
AGovernment approvals
BMarket valuations
CPersonal judgements
DAuditor certificates
Answer: C. The three elements: recorded facts (historical cost data), accounting conventions (like conservatism), and personal judgements (like depreciation rates and provisions).
7
Financial statements record:
ABoth monetary and qualitative information
BOnly information measurable in money terms
COnly future projections
DOnly cash transactions
Answer: B. Only transactions measurable in money are recorded. Qualitative factors like employee skill, management quality, and brand loyalty are ignored — this is a key limitation.
8
Which of the following is an INTERNAL user of financial statements?
APotential investors
BCreditors
CManagement
DTax authorities
Answer: C. Internal users: owners/shareholders, management, employees, Board of Directors. External users: investors, creditors, banks, government, researchers, public.
9
Window dressing refers to:
APreparing statements in vertical format
BManipulating figures to show a better position than reality
CAdding notes to accounts
DPublishing statements in newspapers
Answer: B. Window dressing is the manipulation of accounts to present a rosier picture than the truth. It misleads users and is a major limitation of financial statements.
10
Financial statements are historical in nature because they:
ARecord past transactions at original (historical) cost
BAre prepared only by old companies
CShow future forecasts
DAre kept in historical archives
Answer: A. They summarise past events at original cost. Current market values and future prospects are not shown — a key limitation for decision-making.
11
The sub-headings under Shareholders' Funds are:
AShare Capital; Reserves and Surplus; Money Received Against Share Warrants
BShare Capital; Long-term Borrowings; Reserves
CEquity Capital; Preference Capital; Debentures
DShare Capital; Calls-in-Advance; General Reserve
Answer: A. The three sub-headings of Shareholders' Funds: (a) Share Capital, (b) Reserves and Surplus, (c) Money Received Against Share Warrants.
12
Which of these is NOT a sub-heading under Current Assets?
AInventories
BTrade Receivables
CCapital Work-in-Progress
DCurrent Investments
Answer: C. Capital Work-in-Progress is under Non-Current Assets (Fixed Assets). Current Assets has 6 sub-heads: Current Investments, Inventories, Trade Receivables, Cash and Cash Equivalents, Short-term Loans and Advances, Other Current Assets.
13
In the Statement of Profit and Loss, Total Revenue equals:
ARevenue from Operations only
BRevenue from Operations + Other Income
CRevenue from Operations − Expenses
DProfit After Tax + Tax
Answer: B. Total Revenue (III) = Revenue from Operations (I) + Other Income (II) as per the Schedule III P&L format.
14
For a manufacturing company, Revenue from Operations means:
ARevenue from the sale of products manufactured
BInterest earned on fixed deposits
CProfit on sale of machinery
DDividend received on investments
Answer: A. Revenue from Operations = revenue from the MAIN business activity. Interest, dividend, and profit on asset sale are Other Income (for a non-finance company).
15
Cost of Materials Consumed is calculated as:
APurchases of raw materials only
BOpening stock of raw materials + Purchases − Closing stock of raw materials
COpening stock + Closing stock of materials
DTotal production cost
Answer: B. Materials consumed = what was actually used = Opening RM + Purchases of RM − Closing RM.
16
Contribution to Provident Fund is shown in the Statement of P&L under:
AFinance Costs
BOther Expenses
CEmployee Benefit Expenses
DDepreciation and Amortisation
Answer: C. All employee-related costs — wages, salaries, bonus, staff welfare, PF contribution, gratuity — come under Employee Benefit Expenses.
17
Amortisation refers to writing off:
ATangible fixed assets
BIntangible assets such as patents and goodwill
CCurrent assets
DInvestments
Answer: B. Depreciation applies to tangible assets; amortisation applies to intangible assets (patents, copyrights, goodwill). Both appear in the same P&L line item.
18
Which item is EXCLUDED from the CBSE syllabus for the Statement of Profit and Loss?
AFinance Costs
BOther Income
CExtraordinary Items and Profit/Loss from Discontinued Operations
DEmployee Benefit Expenses
Answer: C. As per the CBSE syllabus note, Exceptional Items, Extraordinary Items, and Profit (Loss) from Discontinued Operations are excluded from the course.
19
Which objective of financial statements helps creditors decide whether to give credit?
AJudging earning capacity
BJudging solvency (ability to pay debts)
CStatutory compliance
DWindow dressing
Answer: B. Creditors and lenders primarily assess the solvency of the company — its capacity to pay short-term and long-term dues on time.
20
[Assertion–Reason] Assertion (A): Two companies in the same industry may show different profits even with identical operations. Reason (R): Financial statements are affected by personal judgements such as depreciation methods and provisioning policies.
ABoth A and R are true, and R explains A
BBoth A and R are true, but R does not explain A
CA is true; R is false
DBoth A and R are false
Answer: A. Different depreciation methods (SLM vs WDV), different provision estimates, and different stock valuation methods produce different profits for identical businesses — R correctly explains A.
Section B2 — Classification: Board Exam Pattern (Q 21–40)
21
[Board Pattern] Bank Overdraft is shown under:
ACash and Cash Equivalents (as negative)
BCurrent Liabilities — Short-term Borrowings
CNon-Current Liabilities — Long-term Borrowings
DCurrent Liabilities — Trade Payables
Answer: B. Bank Overdraft and Cash Credit are Short-term Borrowings under Current Liabilities. This is one of the most repeated board questions.
22
[Board Pattern] Loose Tools appear under:
AFixed Assets — Tangible Assets
BCurrent Assets — Inventories
CCurrent Assets — Other Current Assets
DNon-Current Assets — Other Non-Current Assets
Answer: B. Loose Tools and Stores & Spares are specifically classified under Inventories as per Schedule III — a favourite board trap.
23
[Board Pattern] Goodwill is shown under:
AFixed Assets — Tangible Assets
BFixed Assets — Intangible Assets
CReserves and Surplus
DOther Non-Current Assets
Answer: B. Goodwill, patents, trademarks, copyrights, and computer software all fall under Fixed Assets — Intangible Assets (Non-Current Assets).
24
[Board Pattern] Calls-in-Advance is shown under:
AShareholders' Funds — Share Capital
BShare Application Money Pending Allotment
CCurrent Liabilities — Other Current Liabilities
DReserves and Surplus
Answer: C. Calls-in-Advance is money received before it is due — a liability to adjust against future calls, hence Other Current Liabilities. It is never added to Share Capital.
25
[Board Pattern] Securities Premium Reserve is shown under:
AShare Capital
BReserves and Surplus
COther Current Liabilities
DLong-term Provisions
Answer: B. All reserves — Securities Premium Reserve, General Reserve, Capital Reserve, and the Surplus balance of P&L — come under Reserves and Surplus (Shareholders' Funds).
26
[Board Pattern] Debentures redeemable after 5 years appear under:
ANon-Current Liabilities — Long-term Borrowings
BCurrent Liabilities — Short-term Borrowings
CShareholders' Funds — Reserves and Surplus
DOther Long-term Liabilities
Answer: A. Debentures, bank loans, and public deposits repayable after 12 months are Long-term Borrowings under Non-Current Liabilities.
27
[Board Pattern] Debentures due for redemption within 12 months of the Balance Sheet date (current maturities of long-term debt) are shown under:
ALong-term Borrowings
BShort-term Borrowings
COther Current Liabilities
DShort-term Provisions
Answer: C. Current maturities of long-term debt (the portion of long-term loans/debentures due within 12 months) are shown under Other Current Liabilities — a high-frequency board question.
28
[Board Pattern] Unclaimed Dividend is shown under:
AReserves and Surplus
BShort-term Provisions
COther Current Liabilities
DTrade Payables
Answer: C. Unclaimed dividend (declared but not yet claimed by shareholders) is a current liability under Other Current Liabilities.
29
[Board Pattern] Bills Receivable appear under:
ACurrent Assets — Other Current Assets
BCurrent Assets — Trade Receivables
CCurrent Assets — Cash and Cash Equivalents
DNon-Current Assets — Long-term Loans and Advances
Answer: B. Trade Receivables = Debtors + Bills Receivable (amounts due from customers for goods sold in the normal course of business).
30
[Board Pattern] Provision for Tax is shown under:
ALong-term Provisions
BCurrent Liabilities — Short-term Provisions
COther Current Liabilities
DReserves and Surplus
Answer: B. Provision for Tax is normally payable within 12 months, so it appears under Short-term Provisions (Current Liabilities).
31
[Board Pattern] Provision for Gratuity (payable beyond 12 months) appears under:
ANon-Current Liabilities — Long-term Provisions
BCurrent Liabilities — Short-term Provisions
CEmployee Benefit Expenses
DReserves and Surplus
Answer: A. Provisions for employee benefits payable after 12 months (like gratuity and leave encashment) come under Long-term Provisions.
32
[Board Pattern] Building Under Construction is shown under:
AFixed Assets — Tangible Assets
BFixed Assets — Capital Work-in-Progress
CInventories
DOther Non-Current Assets
Answer: B. Assets under construction (not yet ready for use) appear under Capital Work-in-Progress. Once complete, they move to Tangible Assets.
33
[Board Pattern] Patents Under Development appear under:
AIntangible Assets
BCapital Work-in-Progress
CIntangible Assets Under Development
DOther Current Assets
Answer: C. Intangible assets still being developed (patents in progress, software under development) have their own sub-head: Intangible Assets Under Development.
34
[Board Pattern] Prepaid Insurance appears under:
AOther Non-Current Assets
BCash and Cash Equivalents
CCurrent Assets — Other Current Assets
DShort-term Loans and Advances
Answer: C. Prepaid expenses, accrued income, and interest receivable fall under Other Current Assets.
35
[Board Pattern] Interest on Debentures appears in the Statement of P&L under:
AOther Expenses
BFinance Costs
CEmployee Benefit Expenses
DDepreciation and Amortisation Expenses
Answer: B. All borrowing costs — interest on debentures, interest on loans, discount/loss on issue of debentures written off — appear under Finance Costs.
36
[Board Pattern] Bank Charges appear in the Statement of P&L under:
AFinance Costs
BOther Expenses
CEmployee Benefit Expenses
DRevenue from Operations (deducted)
Answer: B. Bank charges are a service fee, NOT a borrowing cost — hence Other Expenses, not Finance Costs. A classic exam trap paired with Q35.
37
[Board Pattern] For a company whose main business is buying and selling investments, dividend received is:
ARevenue from Operations
BOther Income
CFinance Costs
DNot shown in P&L
Answer: A. For a finance/investment company, interest and dividend earned ARE the main business — hence Revenue from Operations. For any other company, they are Other Income. Context decides the classification.
38
[Board Pattern] Which pair is correctly matched?
AStores and Spares — Other Current Assets
BCheques in Hand — Trade Receivables
CComputer Software — Intangible Assets
DPublic Deposits — Current Liabilities
Answer: C. Computer Software is an Intangible Asset. Corrections: Stores and Spares → Inventories; Cheques in Hand → Cash and Cash Equivalents; Public Deposits → Long-term Borrowings (Non-Current Liabilities).
39
[Board Pattern] Share Application Money Pending Allotment is shown:
AUnder Shareholders' Funds
BAs a separate major head between Shareholders' Funds and Non-Current Liabilities
CUnder Other Current Liabilities
DUnder Reserves and Surplus
Answer: B. It is an independent major head (head no. 2) on the Equity and Liabilities side — money received for shares that are yet to be allotted.
40
[Board Pattern] Negative balance (Dr.) of Statement of Profit and Loss is shown:
AOn the Assets side as a fictitious asset
BAs a negative figure under Reserves and Surplus
CUnder Other Current Liabilities
DIt is not shown in the Balance Sheet
Answer: B. Under Schedule III, accumulated losses are shown as a NEGATIVE figure under Reserves and Surplus (Surplus line) — not on the asset side as under the old format. The total of Reserves and Surplus can even be negative.
Chapter 9 — Live Quiz
40 questions · Financial Statements of a Company · Board exam pattern · Instant feedback
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