Worked Solution
✓ VerifiedNote: The specific ledger balances (trial balance figures) for Om Ltd. were not included in the question as presented. The solution below demonstrates the complete methodology for preparing the Statement of Profit & Loss and Balance Sheet under Schedule III of the Companies Act, 2013, incorporating all stated adjustments. A student with the actual trial balance figures should slot them in at each marked step.
ADJUSTMENTS TO BE PROCESSED BEFORE PREPARATION:
1. Closing Inventory ₹7,05,000 — Credited to Trading A/c (Statement of P&L); shown under Current Assets → Inventories in Balance Sheet.
2. Outstanding Wages ₹25,000 — Added to Wages on the debit side of P&L; shown under Current Liabilities → Other Current Liabilities in Balance Sheet.
3. Outstanding Business Expenses ₹36,500 — Added to respective expense head in P&L; shown under Current Liabilities → Other Current Liabilities.
4. Depreciation — Calculated at given rates on respective asset values (Written Down Value or Straight Line as specified). Debited to P&L; deducted from Fixed Assets in Balance Sheet under Non-Current Assets.
5. Provision for Doubtful Debts ₹25,000 — Debited to P&L under Other Expenses; shown as deduction from Trade Receivables in Balance Sheet.
6. Income Tax @ 30% — Calculated on Profit Before Tax (PBT). Tax = PBT × 30%. Deducted to arrive at Profit After Tax (PAT). Shown under Current Liabilities → Current Tax Liabilities in Balance Sheet.
7. Transfer to General Reserve ₹10,000 — Deducted from PAT; transferred to Reserves & Surplus under Shareholders' Funds in Balance Sheet.
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STATEMENT OF PROFIT & LOSS for the year ended 31st March, 2021
(As per Schedule III, Companies Act 2013)
I. Revenue from Operations — [Sales/Turnover from trial balance] ₹ XX
II. Other Income — [As per trial balance] ₹ XX
III. Total Revenue (I + II) ₹ XX
IV. Expenses:
- Cost of Materials Consumed (Opening Stock + Purchases – Closing Stock ₹7,05,000)
- Employee Benefits Expense (Wages including outstanding ₹25,000)
- Finance Costs
- Depreciation and Amortisation Expense
- Other Expenses (Business expenses including outstanding ₹36,500 + Provision for Doubtful Debts ₹25,000)
Total Expenses ₹ XX
V. Profit Before Tax (III – IV) ₹ XX
VI. Tax Expense @ 30% ₹ XX
VII. Profit After Tax ₹ XX
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BALANCE SHEET as at 31st March, 2021
(As per Schedule III, Companies Act 2013)
EQUITY AND LIABILITIES:
Shareholders' Funds:
- Share Capital: Authorised — 5,00,000 equity shares of ₹10 each = ₹50,00,000. Issued/Subscribed/Paid-up — [as per trial balance]
- Reserves & Surplus: General Reserve (opening + ₹10,000 transferred), Surplus i.e. balance in P&L A/c (PAT – ₹10,000 transferred to reserves)
Non-Current Liabilities: [as per trial balance]
Current Liabilities:
- Trade Payables [as per trial balance]
- Other Current Liabilities: Outstanding Wages ₹25,000 + Outstanding Business Expenses ₹36,500
- Short-Term Provisions: Provision for Tax [30% of PBT]
ASSETS:
Non-Current Assets:
- Fixed Assets (Tangible): Gross Block – Accumulated Depreciation (including current year depreciation)
Current Assets:
- Inventories: Closing Stock ₹7,05,000
- Trade Receivables: [as per trial balance] – Provision for Doubtful Debts ₹25,000
- Cash and Cash Equivalents [as per trial balance]
The Balance Sheet must tally: Total Equity & Liabilities = Total Assets.
Students must verify that all items are classified correctly between current and non-current per Schedule III, and all notes to accounts are prepared for Share Capital, Reserves & Surplus, Fixed Assets, and Trade Receivables.
Write it like this
1The skeleton
- Write 'As per Schedule III of the Companies Act, 2013' in the heading of BOTH statements — examiners check this in the first line; missing it costs presentation marks even if your numbers are perfect.
- Process ALL adjustments first as a checklist before touching the formats — closing stock, outstanding liabilities, depreciation, PDD, tax, reserve transfer — tick each one off so nothing slips into the wrong side or gets double-counted.
- In P&L, use the exact Schedule III line items: 'Cost of Materials Consumed', 'Employee Benefits Expense', 'Depreciation and Amortisation Expense', 'Other Expenses' — writing 'wages' or 'sundry expenses' instead of these headings drops you into old format territory and examiners notice immediately.
- In the Balance Sheet, show Share Capital as Authorised / Issued / Subscribed / Paid-up in separate sub-lines — the ₹50 lakh authorised capital is given for a reason; if you club it or skip authorised, you lose the Share Capital note marks.
- Show Outstanding Wages and Outstanding Business Expenses under 'Other Current Liabilities', NOT Trade Payables — and net off PDD directly against Trade Receivables with a note, not as a separate liability line.
- Arrive at PAT → deduct ₹10,000 to General Reserve → show balance as 'Surplus i.e. Balance in Statement of P&L' under Reserves & Surplus — this two-step split in Reserves & Surplus note is where most marks sit at the end.
2Examiner-rewarded phrases
3Common trap
The single biggest mark-killer here is writing the Balance Sheet in the old T-format (Assets on right, Liabilities on left) or using old heads like 'Current Assets, Loans & Advances' — Schedule III vertical format is mandatory for companies and examiners are specifically told to penalise the wrong format. Also, don't park outstanding liabilities under 'Trade Payables'; they go under 'Other Current Liabilities' — one wrong classification = wrong note = marks gone.