Worked Solution
✓ Verified(a) DELTA LIMITED
Statement of Profit and Loss for the year ended 31st March 2021
(₹ in '000)
I. Revenue from Operations: 1,200
II. Other Income – Profit on sale of machinery (Note 6): 6
III. Total Revenue (I + II): 1,206
IV. Expenses:
Cost of goods sold (Adjusted Purchases): 400
Factory expenses: 80
Administrative expenses: 45
Selling expenses: 25
Finance costs – Debenture interest: 30
Depreciation (Note 5): 80
Total Expenses (IV): 660
V. Profit Before Tax (III – IV): 546
Tax expense @ 30%: (163.80)
VI. Profit After Tax: 382.20
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Balance Sheet as at 31st March 2021
(₹ in '000)
EQUITY & LIABILITIES
I. Shareholders' Funds
(a) Share Capital (Note 1): 495
(b) Reserves & Surplus (Note 2): 807.20
Sub-total (I): 1,302.20
II. Non-Current Liabilities
Long-term borrowings – 10% Debentures: 300
Sub-total (II): 300
III. Current Liabilities
Trade payables: 30
Short-term provisions – Provision for tax: 163.80
Sub-total (III): 193.80
Total (I + II + III): 1,796.00
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ASSETS
I. Non-Current Assets
Tangible Fixed Assets (Note 5):
– Land (at revalued amount): 960
– Plant & Machinery (net): 590
Sub-total (I): 1,550
II. Current Assets
Inventories: 96
Trade receivables (Note 3): 120
Cash & cash equivalents (Note 4): 25
Other bank balances (Note 4): 5
Sub-total (II): 246
Total (I + II): 1,796.00 ✓
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NOTES TO ACCOUNTS (₹ in '000)
Note 1 – Share Capital
Authorised: 80,000 shares of ₹10 each: 800
Issued: 50,000 shares of ₹10 each: 500
Subscribed & called up: 500
Less: Calls in arrears: (5)
Paid-up Share Capital: 495
(Of the above, 5,000 equity shares of ₹10 each, i.e., ₹50,000, were issued for consideration other than cash.)
Note 2 – Reserves & Surplus
Securities Premium Reserve: 40
Revaluation Reserve (on revaluation of land): 160
General Reserve: 150
Surplus in Statement of P&L:
Opening balance (1.4.2020): 75
Add: Profit for the year: 382.20
Closing balance: 457.20
Total Reserves & Surplus: 807.20
Note 3 – Trade Receivables (Unsecured, considered good)
Outstanding for more than six months: 50
Outstanding for less than six months: 70
Total: 120
Note 4 – Cash & Cash Equivalents
Cash in hand: 2
Balances with scheduled banks: 23
Total Cash & Cash Equivalents: 25
Other Bank Balances:
Balance with ABC Bank Ltd. (non-scheduled bank): 5
Note 5 – Tangible Fixed Assets
Land:
Opening cost: 800 | Add: Revaluation surplus: 160 | Closing gross block: 960 | No depreciation | Net block: 960
Plant & Machinery:
Opening cost: 824 | Less: Disposed during year: (24) | Closing gross block: 800
Opening accumulated depreciation: 150 | Less: On disposed asset: (20) | Add: For the year (10% on ₹800): 80 | Closing accumulated depreciation: 210
Net block: 590
Note 6 – Profit on Disposal of Machinery
Sale proceeds (suspense cleared): 10
Less: WDV (cost 24 – accum. dep 20): (4)
Profit on sale: 6
(Note: The bank balance of ₹28,000 already includes the ₹10,000 received; suspense was only an unclassified credit.)
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(b) Comment on Current Maturities of Long-Term Borrowings under Schedule III
The statement is correct and is in line with Schedule III to the Companies Act 2013. Long-term borrowings (e.g., debentures, term loans) are classified under Non-Current Liabilities in the Balance Sheet. However, that portion of such borrowings which is due for repayment within 12 months from the Balance Sheet date is called current maturities of long-term debt.
Schedule III specifically requires that current maturities of long-term borrowings be disclosed separately under the head "Other Current Liabilities" within Current Liabilities, and NOT clubbed under Long-term Borrowings. This treatment is consistent with the current vs. non-current classification principle: any obligation expected to be settled within the normal operating cycle or within 12 months of the reporting date is a current liability.
This separate disclosure serves two key purposes: (i) it prevents overstatement of long-term liabilities, giving a true picture of the company's capital structure, and (ii) it enables users to accurately assess short-term liquidity risk — knowing how much of long-term debt falls due imminently. For instance, if ₹1,00,000 of a ₹10,00,000 debenture is due within the year, it must be moved to "Other Current Liabilities," not left under "Long-term Borrowings."
Write it like this
1The skeleton
- Lead with the P&L heading verbatim — write 'Statement of Profit and Loss for the year ended 31st March 2021' with '(₹ in '000)' on the next line; examiners scan for this exact format in the first two lines and it signals you know Schedule III cold.
- Clear the Suspense Account through Note 6 before touching the BS — compute sale proceeds minus WDV, book profit in Other Income, and zero out the suspense; if you leave ₹10K hanging as a liability your BS won't balance and you lose the easy 'totals tally' marks.
- Build Note 5 (Fixed Assets) as a mini-table — show gross block opening → disposals → closing, then depreciation opening → reversal on disposal → charge for year → closing, then net block; this note carries the most sub-marks and examiners check each row individually.
- Cascade Share Capital Note top-to-bottom: Authorised → Issued → Subscribed & Called Up → Less Calls in Arrears → Paid-up — then add the italicised disclosure line about shares issued for consideration other than cash; missing the cascade drops you a whole sub-mark even if the final ₹495K is right.
- Split Cash into two buckets under Current Assets — 'Cash & Cash Equivalents' (cash in hand + scheduled bank ₹23K) and 'Other Bank Balances' (ABC Bank ₹5K separately); Schedule III mandates this split and most students miss it, gifting themselves a wrong sub-total.
- End every section with a sub-total and confirm grand totals match — write 'Total (I + II): 1,796.00 ✓' explicitly; the tick is your signal to the examiner that you verified the balance, and it protects your method marks even if an earlier number is off.
2Examiner-rewarded phrases
3Common trap
Heads up — the single biggest mark-killer here is charging depreciation on the original Plant & Machinery cost of ₹824K instead of on the closing gross block of ₹800K (after removing the disposed asset), AND forgetting to reverse its ₹20K accumulated depreciation; you end up with wrong depreciation, wrong net block, wrong profit, and a BS that won't balance — four errors from one mistake.