Company Final Accounts

Company means an association of persons formed for the economic gains of its members Indian Companies Act of 1956 regulates workings of companies registered under it. Company in the name of a firm need not imply that it is a registered company under the Act

Characteristics of JSC form of Organization

Voluntary Association Independent Legal Entity Perpetual Existence Common Seal Limited Liability Transferability of shares

Final Account
Maintenance of Proper Books of A/c - Desirable in the context of SProp and Partnership Firms Maintenance and Preparation & Submission is compulsory u/s 209 and 210 of ICA, 56.

Company Final Account

U/s 209, Companies must maintain proper books of accounts related to -All moneys received and paid by the coy and matters in respect of which the receipt and expenditure takes place -All sales and purchases of goods -All the assets and liabilities -Details of the cost (applicable in case of manufacturing, processing, mining coys)

Company Final Account

U/s 209, -Companies must maintain proper books of accounts in a manner reflecting true and fair view of the state of affairs of the company -Account books should neither give false information nor should they conceal any type of information which they are expected to convey -Books are to be kept on accrual basis -Books must be maintained according to double entry system

Company Final Account

U/s 209, the following persons are responsible for keeping the books of A/c -Where the company has a MD or Manager, such as MD or Manager -Where the company does not have MD or Manager, then every director of the company --Every officer and other employees and agents (acting on behalf or purporting to act on behalf of the company) Failure to do so, will attract penalty upto 6 months or imposition of fine up to Rs. 10.000 or both Responsibilities can be entrusted; in such case entrusted person will be responsible

Company Final Account Preparation

U/s 210: -At every AGM, the BOD should lay before the company, - A balance sheet as at the end of A/cg period - A P&L A/c for the A/cg period [Accounting period is called Financial year has to be 12 months ending March 31wef March 89 through Income Tax Act 61]

Company Final Account Preparation

U/s 211: A. Balance Sheet should be in the form as given in Part I of Schedule VI to the Companies Act (p. 545) B. P&L A/c should comply with the requirements of Part II of Schedule VI to the Companies Act (p.557) C. Interpretation of terms under A & B should conform to Part III of Schedule VI to the Companies Act (p.562) D. Abridged Balance Sheet and Companys General Business Profile need to conform to the form as given in Part IV of Schedule VI to the Companies Act

Company Final Account Preparation

Companies need to comply with the Accounting Standards, as framed by ICAI. If not, the following should be disclosed: -The deviation from the accounting standard -The reasons for such deviations, and -The financial effects if any, arising due to such deviations

Company Final Account Preparation

-Financial Statements are to be signed, on behalf of the company, by the persons as per the provisions u/s 215 of the Companies Act -These statements should be sent not less than 21 days before the date of AGM -3 copies should be filed with the ROC within 30 days from the date on which they were laid in the meeting -These statements should be accompanied by the Directors and Auditors Reports

Company Final Account Preparation

U/s 217, Directors report should contain the following in the prescribed format: amount of dividend proposed -names of employees receiving remuneration exceeding Rs. 1 lakh pm -conservation of energy -forex earnings and outgo

Company Final Account Preparation

U/s 217, Directors report should contain the Directors Responsibility Statement indicating -Preparation of Annual A/c in conformity with Accounting Standards -Selected Accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent -Adequate care taken to maintain and safeguard the books of accounts -Books of A/c were prepared on a going concern basis

Company Final Account Special Points

Take care of the following: 1. Headings Trading and P&L A/c can be combined P&L Appropriation A/c follows P&LA/c Above the line Below the line 2. Abnormal Items: Should be disclosed separately; not to be included with other items

Company Final Account Special Points

3. Adjustments relating to previous year All such adjustments are to be shown in the P&L Appropriation A/c Ex: -Bad Debt Recovered (written off last year) -Extra provision for tax in respect of profit earned in an earlier year -Workmen compensation pertain to previous year

Company Final Account Special Points

4. Tax Adjustments: - Tax Deducted At Source - Advance Payment of Tax - Provision for Taxation Tax rates are fixed by Finance Bill passed by Parliament March of every year; but comes into force from April 1st of next year. - Fiscal (Financial) year; Previous Year; Assessment Year

Company Final Account Special Points

4.A. Tax Deducted At Source
That is, tax to be deducted at the time of making payment by way of interest, salary

Entry:
Salary / Interest A/c Dr To Bank A/c To Tax Deducted At source A/c Note: P&L A/c is Debited with the gross amount of Salary /Interest Tax Deducted At Source is shown under Liabilities

Company Final Account Special Points

4.A. Tax Deducted At Source .
Tax is also paid at the time of receipt by way of dividend, interest

Entry:
Bank A/c Tax Deducted At source A/c To Interest A/c Note: Dr Dr

P&L A/c is Credited with the gross amount of Interest / Dividend Tax Deducted At Source is shown under Assets

Company Final Account Special Points

4.B. Advance Payment of Tax .
U/s 208 of Income Tax Act 1961, every person is required to pay advance tax when his income tax liablity is expected to be Rs. 5,000 or more in the relevant previous year. Entry: Tax paid in Advance A/c Dr To Bank A/c Note: Tax paid in advance appears on the Asset side of the B/S; and will be adjusted against the Income tax payable after assessment.

Company Final Account Special Points

4.C. Provision for Taxation . Provision for taxation in respect of profit is made during the accounting period. Entry: Profit and Loss A/c Dr To Provision for Taxation A/c Note: Provision for Taxation appears as a Liability till the assessment in respect of that year is finalized

Company Final Account

4. Tax Adjustments: A Problem .
Few extracts of TB of a company as on March 31, 06 are as follows: 1. Provision for Taxation (2004-05) (2004Rs. 10000 Cr 2. Advance Tax paid for 2004-05 2004Rs. 8000 Dr 3. Advance Tax paid for 2005-06 2005Rs. 10000 Dr 4. Tax deducted at Source (2005-06) Rs. 1000 Dr (20055. Tax deducted at Source (2005-06) Rs. 2000 Cr (20056. Profit and Loss A/c Bal (2004-05) Rs. 20000 Cr (2004Note: Assessment for 2004-05 was finalized during 20052004200506, and total tax liability for that year was fixed at Rs. 12000. Profit made during 2005-06 before tax amounts 2005to Rs. 30000. The company is in the 35% tax bracket Show how these items will appear in the final accounts.

Company Final Account

5. Dividends: - A part of the profit of a company distributed to shareholders - BoD has recommend; but approved at AGM - BoD can declare interim dividend, that is, dividend declared b/w two AGM - Final Dividend does not include interim unless and otherwise stated - Dividends are to be paid out o divisible profits

Company Final Account

5. Dividends: Dividends can be paid out of - the current profits of the company - the past accumulated profits, - money provide by the Govt. for the payment of dividends in pursuance of the guarantee given. - Dividend paid out of Capital is illegal, and Directors are personally liable

Company Final Account

5. Dividends: out of accumulated profits if the following conditions are satisfied
1. The rate of dividend shall not exceed the average of the rates of immediately preceding past 5 years; or 10 % of PUC, whichever is less 2. Total amount drawn should not exceed an amount equal to 1/10 of PUC and free reserves
(The amount drawn must be first used to set off the losses in the FY before utilizing it for declaring div)\ div)\ 3. The balance of reserves after such withdrawal shall not fall below 15 % of its PUC

Company Final Account

5. Dividend: A problem
From the following particulars, you are to ascertain the amount that can be drawn 5,000 8% Pref share of Rs. 10 each fully paid 2,00,000 Equity share of Rs. 10 each fully paid General Reserve Rs. 600,000 Capital Res on revaluation of assetsRs.100,000 Share Premium Rs. 100,000 P&L A/c (Cr) Rs. 18,000 NP for the year Rs. 102,000 Average rate of dividend during the last five years: 15 %

Company Final Account

5. Dividend: Rules regarding payment
- BOD recommends the rate of dividend; but duly approved at AGM. Members cannot increase dividend rate or amount - Dividends are to be paid only in cash; not in kind like shares (can do so if AoA authorises and other legal conditions are satisfied) - Dividend to be paid to those whose names appear in the Registrar of memers on that date - U/s 207,All dividends must be paid within 30 days of declaring dividends

Company Final Account

5. Dividend: Rules regarding payment
- If not, every Director become liable (3 years of imprisonment or fine of 5 for 1000 rupee) - the company is liable to pay simple interest at 18 % pa during the period of default - Equivalent amount is usually transferred to Dividend Bank A/c) U/s 205, Companies are required to create Unpaid Dividend a/c within 7 days after the expiry of 30 days for the dt of declaration The unclaimed dividend are to be transferred to Investor Education and Protection Fund of Central Govt; after the expiry of 7 years.

Company Final Account

5. Dividend: Accounting Entries
On recommending dividend: P&L Appropriation A/c Dr To Proposed Dividends A/c Interim Dividend: At the end of FY, the interim dividend will be transferred to P&L Apprpr A/c P&L Appropriation A/c Dr To Interim Dividends A/c

Company Final Account

6. Transfer to Reserves U/s 205, it is mandatory to make transfers to reserves before declaring dividends. As per the rules, the percentage is
2 % if the dividend proposed exceed 10 % but not 12 % 5 % if the dividend proposed exceed 12 % but not 15 % 7 % if the dividend proposed exceed 15 % but not 20 % 10 % if the dividend proposed exceed 20 % Entry: Profit and Loss Appropriation A/c Dr\\ Dr\ To General Reserve A/c

Company Final Account

7. Managerial Remuneration U/s 198, MR should not exceed 11 % of net profit of the company. U/s 349 and 350, provide the following to compute Net Profit Refer the text book, p. 319