Class 12 Accountancy Accountancy Part II Chapter 3

NCERT Solutions for Class 12 Accountancy Accountancy Part II Chapter 3: Financial Statements of a Company

Class	Subject	Book	Chapter	Session	Questions covered
XII	Accountancy	Accountancy Part II (NCERT)	3 – Financial Statements of a Company	2026-27	20 of 20

Chapter at a glance

Topic	Key point
Financial statements	Balance Sheet, Statement of Profit and Loss, Cash Flow Statement, Statement of Changes in Equity (if applicable) and Notes (Sec. 2(40), Companies Act, 2013)
Format	Schedule III (Division I) of the Companies Act, 2013 – vertical form
Balance Sheet – Equity and Liabilities	Shareholders’ funds; Share application money pending allotment; Non-current liabilities; Current liabilities
Balance Sheet – Assets	Non-current assets (PPE, intangible assets, CWIP, non-current investments, long-term loans and advances, other non-current assets); Current assets (current investments, inventories, trade receivables, cash and cash equivalents, short-term loans and advances, other current assets)
Statement of Profit and Loss	Revenue from operations + Other income – Expenses (materials consumed, purchases, change in inventories, employee benefits, finance costs, depreciation, other expenses) = Profit before tax
Current / non-current	Realisable or payable within 12 months (or operating cycle) = current
Items not shown as assets	Preliminary expenses and discount on issue of shares are written off
Proposed dividend	Not a liability (AS 4 revised); disclosed in notes
Contingent liabilities	Shown in notes to accounts

Questions for Practice – Short Answer Questions

Question SA – Q1

State the meaning of financial statements?

Answer

Financial statements are the end products of the accounting process. They summarise the financial information of an enterprise for a period, showing its financial performance (Statement of Profit and Loss) and financial position (Balance Sheet) on a date, along with the Cash Flow Statement and Notes to Accounts. Under Sec. 2(40) of the Companies Act, 2013 they include the balance sheet, statement of profit and loss, cash flow statement, statement of changes in equity (if applicable) and explanatory notes.

Financial statements are summarised reports – Balance Sheet, Statement of Profit and Loss, Cash Flow Statement and Notes – showing a company’s position and performance.

Question SA – Q2

What are limitations of financial statements?

Answer

They are historical – they record past transactions, so they do not show future position.
They ignore price-level changes (inflation).
Qualitative information (management quality, employee morale) is not shown.
They are affected by personal judgement (choice of depreciation method, stock valuation).
They are interim reports; the true result is known only on winding up.
They may be window-dressed.

They are historical, ignore price changes and qualitative factors, depend on personal judgement, are interim and can be window-dressed.

Question SA – Q3

List any three objectives of financial statements?

Answer

To provide information about the economic resources and obligations (financial position) of the business.
To provide information about the earning capacity / financial performance (profit or loss) of the business.
To provide information about cash flows to judge liquidity and solvency.
(Also) To judge the effectiveness of management; to disclose accounting policies.

To show financial position (resources and obligations), financial performance (profit or loss) and cash flows of the business.

Question SA – Q4

State the importance of financial statements to: (i) shareholders (ii) creditors (iii) government (iv) investors

Answer

User	Importance
(i) Shareholders	Judge profitability, safety of investment, dividend prospects and management efficiency
(ii) Creditors	Judge short-term solvency (liquidity) – whether their dues will be paid on time
(iii) Government	Assess tax liability, frame economic policies, regulate industries, compile national income statistics
(iv) Investors	Judge long-term solvency, earning capacity and growth, to decide whether to invest

Shareholders check profitability and safety, creditors check liquidity, government uses them for taxation and policy, and investors judge earning capacity and safety.

Question SA – Q5

How will you disclose the following items in the Balance Sheet of a company: (i) Current assets, inventory (ii) Contingent liabilities in notes to accounts (iii) Shareholders Funds, Reserve and Surplus (iv) Fixed Assets, Intangible Assets (v) Proposed Dividend for the current year (vi) Non Current Liabilities (vii) Arrears of Dividend on Cumulative Preference Shares.

Answer

Item	Disclosure
(i) Inventory	Assets → Current assets → Inventories (raw materials, WIP, finished goods, stock-in-trade, stores and spares, loose tools)
(ii) Contingent liabilities	Not shown in the balance sheet; disclosed in Notes to Accounts (claims not acknowledged as debts, guarantees, bills discounted, etc.)
(iii) Reserves and surplus	Equity and Liabilities → Shareholders’ funds → Reserves and surplus (capital reserve, securities premium, DRR, general reserve, surplus)
(iv) Intangible assets	Assets → Non-current assets → Property, plant and equipment and intangible assets → Intangible assets (goodwill, patents, trademarks)
(v) Proposed dividend	Not a liability (AS 4); disclosed in Notes to Accounts
(vi) Non-current liabilities	Equity and Liabilities → Non-current liabilities → Long-term borrowings, deferred tax liabilities, other long-term liabilities, long-term provisions
(vii) Arrears of preference dividend	Disclosed in Notes to Accounts as a contingent liability

Inventory under current assets; contingent liabilities, proposed dividend and arrears of preference dividend in notes; reserves under shareholders’ funds; intangible assets under non-current assets; long-term borrowings and provisions under non-current liabilities.

Questions for Practice – Long Answer Questions

Question LA – Q1

Explain the nature of the financial statements.

Answer

Financial statements are prepared from accounting records using generally accepted principles; their nature is determined by:

Recorded facts – they are based on facts recorded in the books, at historical cost; unrecorded facts (e.g. market value of assets) are not shown.
Accounting conventions – conventions such as conservatism, consistency, materiality and full disclosure are followed (e.g. stock at cost or market price, whichever is lower).
Postulates (assumptions) – going concern, money measurement, realisation, accounting period, etc.
Personal judgements – choice of depreciation method, estimate of useful life, provision for doubtful debts, inventory valuation method involve the judgement of the accountant.

Hence they are historical, conventional and judgemental in nature, and not exact.

Financial statements combine recorded facts, accounting conventions, accounting postulates and personal judgements, so they are historical and not exact.

Question LA – Q2

Explain in detail about the significance of the financial statements.

Answer

Report on stewardship – show shareholders how management has used their funds.
Basis for fiscal policy – government uses them for taxation, licensing and economic planning.
Basis for granting credit – banks and creditors judge liquidity and solvency before lending.
Basis for investment decisions – investors assess profitability, safety and growth.
Guide to the value of investment – help in valuing shares and the business.
Aid to trade associations – help analyse industry trends and develop standards.
Help to stock exchanges – listed companies’ statements help price securities and protect investors.
Management decisions – help in planning, control and comparing performance over years and with other firms.
Employees and trade unions – help in wage negotiations, bonus and job security.

They report stewardship to shareholders and help government policy, credit and investment decisions, valuation of shares, stock exchanges, management planning and wage negotiations.

Question LA – Q3

Explain the limitations of financial statements.

Answer

Do not reflect current situation – based on historical cost; market values may differ.
Assets may not realise the stated values (e.g. debtors, stock).
Bias – affected by personal judgements (methods and estimates).
Aggregate information – detailed information about products, segments or costs is not given.
Vital information missing – e.g. loss of markets, order book, competition, quality of management.
No qualitative information – employee relations, customer satisfaction, etc.
Window dressing – the position may be shown better than it is.
Price-level changes ignored – figures of different years are not comparable in real terms.
Interim reports – exact profit can be known only when the business closes.

They are historical, may not realise stated values, are biased by judgement, aggregated, omit vital and qualitative information, can be window-dressed and ignore price changes.

Question LA – Q4

Prepare the format of statement of profit and loss and explain its items upto the ascertainment of profit before tax.

Answer

Statement of Profit and Loss for the year ended … (Schedule III, Part II)

Particulars	Current year (₹)	Previous year (₹)
I. Revenue from operations	xxx	xxx
II. Other income	xxx	xxx
III. Total income (I + II)	xxx	xxx
IV. Expenses:
Cost of materials consumed	xxx	xxx
Purchases of stock-in-trade	xxx	xxx
Changes in inventories of finished goods, WIP and stock-in-trade	xxx	xxx
Employee benefits expense	xxx	xxx
Finance costs	xxx	xxx
Depreciation and amortisation expense	xxx	xxx
Other expenses	xxx	xxx
Total expenses	xxx	xxx
V. Profit before exceptional and extraordinary items and tax (III – IV)	xxx	xxx
VI. Exceptional items	xxx	xxx
VII. Profit before extraordinary items and tax	xxx	xxx
VIII. Extraordinary items	xxx	xxx
IX. Profit before tax	xxx	xxx

Items explained

Revenue from operations – sale of products, sale of services and other operating revenues (e.g. scrap sales), less excise duty/GST where applicable.
Other income – interest, dividend, net gain on sale of investments, rent and other non-operating income.
Cost of materials consumed – opening stock of raw materials + purchases – closing stock.
Purchases of stock-in-trade – goods bought for resale.
Changes in inventories – opening stock – closing stock of finished goods, WIP and stock-in-trade.
Employee benefits expense – salaries, wages, bonus, contribution to PF, staff welfare.
Finance costs – interest on borrowings and debentures, other borrowing costs.
Depreciation and amortisation – depreciation on tangible assets and amortisation of intangible assets.
Other expenses – rent, power, repairs, insurance, advertisement, carriage, etc.
Exceptional and extraordinary items – unusual items such as loss by fire or earthquake.

Total income (revenue from operations + other income) less expenses (materials, purchases, change in inventories, employee benefits, finance costs, depreciation, other expenses), adjusted for exceptional and extraordinary items, gives profit before tax.

Question LA – Q5

Prepare the format of balance sheet and explain the various elements of balance sheet.

Answer

Balance Sheet of … as at … (Schedule III, Part I)

Particulars	Note No.	Current year (₹)	Previous year (₹)
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) Property, plant and equipment and intangible assets – (i) PPE (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

Elements

Share capital – authorised, issued, subscribed and paid-up capital, by class of shares.
Reserves and surplus – capital reserve, securities premium, DRR, revaluation reserve, general reserve, surplus (balance in Statement of P&L; a debit balance is shown as a negative figure).
Long-term borrowings – debentures, term loans, public deposits repayable after 12 months.
Trade payables – creditors and bills payable for goods and services.
Other current liabilities – current maturities of long-term debt, interest accrued, unpaid dividends, calls in advance, outstanding expenses.
Short-term provisions – provision for tax, provision for employee benefits payable within 12 months.
PPE – land, buildings, plant, furniture, vehicles (net of depreciation).
Intangible assets – goodwill, patents, trademarks, software.
Inventories – raw materials, WIP, finished goods, stores and spares, loose tools.
Trade receivables – debtors and bills receivable.
Cash and cash equivalents – cash in hand, balances with banks, cheques in hand.
Other current assets – prepaid expenses, accrued income, unamortised discount to be written off within 12 months.

The Schedule III balance sheet shows Equity and Liabilities (shareholders’ funds, share application money pending allotment, non-current and current liabilities) and Assets (non-current and current), with details in notes.

Question LA – Q6

Explain how financial statements are useful to the various parties who are interested in the affairs of an undertaking?

Answer

User	How useful
Shareholders/owners	Know profitability, dividend capacity, efficiency of management, safety of investment
Management	Planning, control, evaluating performance, comparing with past and with other firms
Creditors/suppliers	Judge liquidity – ability to pay short-term dues
Banks and lenders	Judge solvency, repayment capacity and security before granting loans
Investors (potential)	Decide whether to invest, judging earnings, growth and risk
Employees and unions	Judge job security, bonus and wage demands
Government	Taxation, regulation, policy making, national income statistics
Customers	Assess continuity of supply and after-sales service
Researchers/analysts	Study trends of industries and companies
Stock exchanges	Fix prices of securities and protect investors

Each user – shareholders, management, creditors, lenders, investors, employees, government, customers, researchers and stock exchanges – gets the information it needs about profitability, liquidity, solvency or growth.

Question LA – Q7

‘Financial statements reflect a combination of recorded facts, accounting conventions and personal judgements’. Discuss.

Answer

Recorded facts – Financial statements are based on facts recorded in the books: cash, debtors, assets at cost, etc. Facts not recorded (e.g. current market value of land, loss of key staff) do not appear. Fixed assets are shown at historical cost less depreciation, not at present value.
Accounting conventions – Certain conventions are followed while preparing them: conservatism (provide for all losses, ignore unrealised gains – stock at cost or market price, whichever is lower), consistency (same methods every year), materiality and full disclosure. These make the statements comparable but not exact.
Postulates – going concern (assets at cost, not realisable value), money measurement (only monetary items), accounting period, realisation.
Personal judgements – The accountant chooses methods and makes estimates: depreciation method (SLM/WDV) and useful life, inventory valuation method (FIFO/weighted average), amount of provision for doubtful debts, classification of capital and revenue items. Different judgements give different profits.

So financial statements are not a precise picture; they must be read with an understanding of these three elements.

Financial statements rest on recorded historical facts, follow conventions like conservatism and consistency, and involve judgements on depreciation, stock valuation and provisions – so they are not absolutely exact.

Question LA – Q8

Explain the process of preparing income statement and balance sheet.

Answer

Prepare the trial balance from ledger balances after recording all transactions.
Pass adjustment entries for closing stock, outstanding and prepaid expenses, accrued income, depreciation, bad debts and provisions, tax provision, etc.
Prepare the Statement of Profit and Loss (Schedule III, Part II):
1. compute revenue from operations and other income;
  1. classify expenses under the prescribed heads (materials consumed, purchases, change in inventories, employee benefits, finance costs, depreciation, other expenses) with supporting notes;
  2. find profit before tax, deduct tax expense, get profit for the period, and compute EPS.
Transfer profit to Surplus (Reserves and Surplus); make appropriations (transfer to reserves, dividends paid).
Prepare the Balance Sheet (Schedule III, Part I):
1. classify each balance into equity, non-current/current liabilities and non-current/current assets;
  1. show main heads on the face and details in the Notes to Accounts;
  2. give previous year’s figures for comparison.
Disclose contingent liabilities, proposed dividends, accounting policies and other required information in the notes.

Prepare the trial balance, pass adjustments, prepare the Statement of Profit and Loss in Schedule III form to find profit, transfer it to surplus, then classify all balances into the Schedule III balance sheet with notes and disclosures.

Questions for Practice – Numerical Questions

Question Num – Q1

Show the following items in the balance sheet as per the provisions of the Companies Act, 2013 in Schedule III: Preliminary Expenses ₹ 2,40,000; Goodwill ₹ 30,000; Discount on issue of shares ₹ 20,000; Loose tools ₹ 12,000; 10% Debentures ₹ 2,00,000; Motor Vehicles ₹ 4,75,000; Stock in trade ₹ 1,40,000; Provision for tax ₹ 16,000; Cash at bank ₹ 1,35,000; Bills receivable ₹ 1,20,000.

Answer

Item	Main head	Sub-head	₹
10 % Debentures	Non-current liabilities	Long-term borrowings	2,00,000
Provision for tax	Current liabilities	Short-term provisions	16,000
Motor vehicles	Non-current assets	Property, plant and equipment	4,75,000
Goodwill	Non-current assets	Intangible assets	30,000
Stock-in-trade	Current assets	Inventories	1,40,000
Loose tools	Current assets	Inventories	12,000
Bills receivable	Current assets	Trade receivables	1,20,000
Cash at bank	Current assets	Cash and cash equivalents	1,35,000
Preliminary expenses	Not shown as an asset – written off to Statement of P&L / Securities Premium (AS 26); if not yet written off, shown as a deduction from Reserves and Surplus	–	2,40,000
Discount on issue of shares	Not an asset – written off from Securities Premium / shown as deduction from Reserves and Surplus (issue at discount is generally not allowed, Sec. 53)	–	20,000

Debentures under long-term borrowings; provision for tax under short-term provisions; motor vehicles under PPE; goodwill under intangible assets; stock and loose tools under inventories; bills receivable under trade receivables; bank under cash and cash equivalents; preliminary expenses and discount on shares are written off (deducted from reserves), not shown as assets.

Question Num – Q2

On April 1, 2017, Jumbo Ltd., issued 10,000; 12% debentures of ₹ 100 each at a discount of 20%, redeemable after 5 years. The company decided to write-off discount on issue of such debentures on March 31, 2018. Show the items in the balance sheet of the company immediately after the issue of these debentures.

Answer

Balance Sheet of Jumbo Ltd. as at April 1, 2017 (extract)

Particulars	Note	₹
I. Equity and Liabilities
Non-current liabilities – Long-term borrowings	1	10,00,000
Total		10,00,000
II. Assets
Current assets – Cash and cash equivalents		8,00,000
Current assets – Other current assets	2	2,00,000
Total		10,00,000

Notes: 1. Long-term borrowings: 10,000, 12 % debentures of ₹ 100 each = ₹ 10,00,000. 2. Other current assets: Discount on issue of debentures (to be written off on March 31, 2018, i.e. within 12 months) = ₹ 2,00,000.

Debentures ₹ 10,00,000 under long-term borrowings; cash ₹ 8,00,000; discount ₹ 2,00,000 under other current assets (to be written off within 12 months).

Question Num – Q3

From the following information prepare the balance sheet of Gitanjali Ltd.: Inventories ₹ 14,00,000; Equity Share Capital ₹ 20,00,000; Plant and Machinery ₹ 10,00,000; Preference Share Capital ₹ 12,00,000; Debenture Redemption Reserve ₹ 6,00,000; Outstanding Expenses ₹ 3,00,000; Proposed Dividend ₹ 5,00,000; Land and Building ₹ 20,00,000; Current Investments ₹ 8,00,000; Cash Equivalent ₹ 10,00,000; Short term loan from Zaveri Ltd. (A Subsidiary Company of Twilight Ltd.) ₹ 4,00,000; Public Deposits ₹ 12,00,000.

Answer

Proposed dividend is not a liability (AS 4 revised); the ₹ 5,00,000 remains in Surplus and is disclosed in the notes.

Balance Sheet of Gitanjali Ltd. as at …

Particulars	Note	₹
I. Equity and Liabilities
1. Shareholders’ funds: (a) Share capital	1	32,00,000
(b) Reserves and surplus	2	11,00,000
2. Non-current liabilities: Long-term borrowings	3	12,00,000
3. Current liabilities: (a) Short-term borrowings	4	4,00,000
(b) Other current liabilities	5	3,00,000
Total		62,00,000
II. Assets
1. Non-current assets: Property, plant and equipment	6	30,00,000
2. Current assets: (a) Current investments		8,00,000
(b) Inventories		14,00,000
(c) Cash and cash equivalents		10,00,000
Total		62,00,000

Notes: 1. Share capital: Equity ₹ 20,00,000 + Preference ₹ 12,00,000 = ₹ 32,00,000. 2. Reserves and surplus: DRR ₹ 6,00,000 + Surplus ₹ 5,00,000 = ₹ 11,00,000. 3. Long-term borrowings: Public deposits ₹ 12,00,000. 4. Short-term borrowings: Loan from Zaveri Ltd. ₹ 4,00,000. 5. Other current liabilities: Outstanding expenses ₹ 3,00,000. 6. PPE: Land and building ₹ 20,00,000 + Plant and machinery ₹ 10,00,000. 7. Proposed dividend of ₹ 5,00,000 for the year is subject to approval of shareholders (disclosed, not provided).

(In the old format, the proposed dividend would appear as a short-term provision; the total would still be ₹ 62,00,000.)

Balance Sheet total ₹ 62,00,000: share capital ₹ 32,00,000, reserves ₹ 11,00,000, public deposits ₹ 12,00,000, short-term loan ₹ 4,00,000, outstanding expenses ₹ 3,00,000; assets PPE ₹ 30,00,000, current investments ₹ 8,00,000, inventories ₹ 14,00,000, cash ₹ 10,00,000.

Question Num – Q4

From the following information prepare the balance sheet of Jam Ltd.: Inventories ₹ 7,00,000; Equity Share Capital ₹ 16,00,000; Plant and Machinery ₹ 8,00,000; 8% Preference Share Capital ₹ 6,00,000; General Reserves ₹ 6,00,000; Bills payable ₹ 1,50,000; Provision for taxation ₹ 2,50,000; Land and Building ₹ 16,00,000; Non-current Investments ₹ 10,00,000; Cash at Bank ₹ 5,00,000; Creditors ₹ 2,00,000; 12% Debentures ₹ 12,00,000.

Answer

Balance Sheet of Jam Ltd. as at …

Particulars	Note	₹
I. Equity and Liabilities
1. Shareholders’ funds: (a) Share capital (16,00,000 + 6,00,000)	1	22,00,000
(b) Reserves and surplus – General reserve		6,00,000
2. Non-current liabilities: Long-term borrowings – 12 % Debentures		12,00,000
3. Current liabilities: (a) Trade payables (Creditors 2,00,000 + Bills payable 1,50,000)	2	3,50,000
(b) Short-term provisions – Provision for taxation		2,50,000
Total		46,00,000
II. Assets
1. Non-current assets: (a) PPE (Land and building 16,00,000 + Plant and machinery 8,00,000)		24,00,000
(b) Non-current investments		10,00,000
2. Current assets: (a) Inventories		7,00,000
(b) Cash and cash equivalents – Cash at bank		5,00,000
Total		46,00,000

Balance Sheet total ₹ 46,00,000.

Question Num – Q5

Prepare the balance sheet of Jyoti Ltd., as at March 31, 2017 from the following information: Building ₹ 10,00,000; Investments in the shares of Metro Tyres Ltd. ₹ 3,00,000; Stores & Spares ₹ 1,00,000; Statement of Profit and Loss (Dr.) ₹ 90,000; 5,00,000 Equity Shares of ₹ 20 each fully paid-up; Capital Redemption Reserve ₹ 1,00,000; 10% Debentures ₹ 3,00,000; Unpaid dividends ₹ 90,000; Share options outstanding account ₹ 10,000.

Answer

The share capital as printed (5,00,000 × ₹ 20 = ₹ 1 crore) cannot match assets of ₹ 14 lakh. It is taken as 50,000 shares of ₹ 20 = ₹ 10,00,000. The remaining difference of ₹ 10,000 is shown as cash and cash equivalents (balancing figure, not given in the data).

Balance Sheet of Jyoti Ltd. as at March 31, 2017

Particulars	Note	₹
I. Equity and Liabilities
1. Shareholders’ funds: (a) Share capital	1	10,00,000
(b) Reserves and surplus	2	20,000
2. Non-current liabilities: Long-term borrowings – 10 % Debentures		3,00,000
3. Current liabilities: Other current liabilities – Unpaid dividends		90,000
Total		14,10,000
II. Assets
1. Non-current assets: (a) PPE – Building		10,00,000
(b) Non-current investments – Shares in Metro Tyres Ltd.		3,00,000
2. Current assets: (a) Inventories – Stores and spares		1,00,000
(b) Cash and cash equivalents (balancing)		10,000
Total		14,10,000

Note 2 – Reserves and surplus: Capital redemption reserve ₹ 1,00,000 + Share options outstanding ₹ 10,000 + Surplus (debit) (₹ 90,000) = ₹ 20,000.

Share capital ₹ 10,00,000; reserves and surplus ₹ 20,000 (CRR ₹ 1,00,000 + share options ₹ 10,000 – P&L debit ₹ 90,000); debentures ₹ 3,00,000 (long-term borrowings); unpaid dividend ₹ 90,000 (other current liabilities); building under PPE, the investment under non-current investments, stores under inventories.

Question Num – Q6

Brinda Ltd., has furnished the following information: (a) 25,000, 10% debentures of ₹ 100 each; (b) Bank Loan of ₹ 10,00,000 repayable after 5 years; (c) Interest on debentures is yet to be paid. Show the above items in the balance sheet of the company as at March 31, 2017.

Answer

Balance Sheet of Brinda Ltd. as at March 31, 2017 (extract)

Particulars	Note	₹
Non-current liabilities – Long-term borrowings	1	35,00,000
Current liabilities – Other current liabilities	2	2,50,000

Notes: 1. Long-term borrowings: 25,000, 10 % debentures of ₹ 100 each ₹ 25,00,000; Bank loan (repayable after 5 years) ₹ 10,00,000 = ₹ 35,00,000. 2. Other current liabilities: Interest accrued and due on debentures (10 % of ₹ 25,00,000 for the year) = ₹ 2,50,000.

Debentures ₹ 25,00,000 and bank loan ₹ 10,00,000 under long-term borrowings; unpaid debenture interest ₹ 2,50,000 under other current liabilities.

Question Num – Q7

Prepare a balance sheet of Black Swan Ltd., as at March 31, 2017 from the following information: General Reserve ₹ 3,000; 10% Debentures ₹ 3,000; Balance in Statement of Profit and Loss ₹ 1,200; Depreciation on fixed assets ₹ 700; Gross Block ₹ 9,000; Current Liabilities ₹ 2,500; Preliminary Expenses ₹ 300; 6% Preference Share Capital ₹ 5,000; Cash & Cash Equivalents ₹ 6,100.

Answer

Preliminary expenses are written off against the surplus (AS 26): surplus = 1,200 – 300 = ₹ 900.

Balance Sheet of Black Swan Ltd. as at March 31, 2017

Particulars	Note	₹
I. Equity and Liabilities
1. Shareholders’ funds: (a) Share capital – 6 % Preference shares		5,000
(b) Reserves and surplus (General reserve 3,000 + Surplus 900)		3,900
2. Non-current liabilities: Long-term borrowings – 10 % Debentures		3,000
3. Current liabilities		2,500
Total		14,400
II. Assets
1. Non-current assets: PPE (Gross block 9,000 – Depreciation 700)		8,300
2. Current assets: Cash and cash equivalents		6,100
Total		14,400

(In the old format, with preliminary expenses shown under “other non-current assets” and the surplus at ₹ 1,200, the total would be ₹ 14,700.)

Balance Sheet total ₹ 14,400 (preliminary expenses written off; PPE ₹ 8,300 and cash ₹ 6,100).

Topic checklist

☒ Meaning, nature, objectives, significance and limitations (SA 1–4; LA 1–3, 6, 7)
☒ Formats of Statement of Profit and Loss and Balance Sheet – Schedule III (LA 4, 5, 8)
☒ Classification and disclosure of items (SA 5; Num 1, 2, 6)
☒ Preparation of company balance sheets (Num 3–5, 7)

Total questions answered: 20 of 20

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Every question from the latest NCERT textbook for this chapter are answered step by step, organised as Questions for Practice – Short Answer Questions, Question SA – Q1, Question SA – Q2, Question SA – Q3, Question SA – Q4, Question SA – Q5, Questions for Practice – Long Answer Questions and Question LA – Q1.

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