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CHAPTER
QUESTIONS – PRESENTATION OF ITEMS IN SCHEDULE III (DIVISION I) + OPERATING CYCLE
Q.1 State under which head the following accounts should be classified in Balance Sheet, as per Schedule III of the Companies Act, 2013:
(i)Share application money received in excess of issued share capital.
(ii)Share option outstanding account.
(iii)Unpaid matured debenture and interest accrued thereon.
(iv)Uncalled liability on shares and other partly paid investments.
(v)Calls unpaid.
(vi)Intangible Assets under development.
(vii)Money received against share warrant.
(viii)Cash equivalents.
(RTP May 2015, MTP March 2019, RTP May 2019)
Ans.
(i)Current Liabilities/Other Current Liabilities
(ii)Shareholders’ Fund/Reserve & Surplus
(iii)Current liabilities/Other Current Liabilities
(iv)Contingent Liabilities and Commitments
(v)Shareholders’ Fund/Share Capital
(vi)Fixed Assets
(vii)Shareholders’ Fund/Money received against share warrants
(viii)Current Assets
11.2
FINANCIAL STATEMENT OF COMPANIES
Q.2 State under which head these accounts should be classified in Balance Sheet, as per Schedule III of the Companies Act:
(i) Share application money received in excess of issued share capital.
(ii) Share option outstanding account.
(iii) Unpaid matured debenture and interest accrued thereon.
(iv) Uncalled liability on shares and other partly paid investments.
(v) Calls unpaid.
(vi) Intangible Assets under development.
(vii) Money received against share warrant.
(viii) Long-term maturity of finance lease obligation.
Ans.
(May 2014, 4 Marks) (MTP March, 2022 (Similar))
Classification for the presentation in Schedule III to the Companies Act, 2013
S. No. Accounts
(i)Share application money received in excess of issued share capital
Head
Other Current Liabilities
(ii)Share option outstanding accountReserve & Surplus
(iii)Unpaid matured debenture and interest accrued thereon
(iv)Uncalled liability on shares and other partly paid investments
(v)Calls unpaid
Other Current Liabilities
Contingent Liabilities and commitments-commitments to the extent not provided for
Share Capital
(vi)Intangible Assets under developmentFixed Assets
(vii)Money received against share warrantShareholders’ Fund
(viii)Long-term maturity of finance lease obligation Long-Term Borrowings
Q.3 State under which head these accounts should be classified in Balance Sheet, as per Schedule III of the Companies Act, 2013:
(i) Share application money received in excess of issued share capital.
(ii) Share option outstanding account.
(iii) Unpaid matured debenture and interest accrued thereon.
(iv) Uncalled liability on shares and other partly paid investments.
(v) Calls unpaid.
Ans.
(i) Current Liabilities/Other Current Liabilities
(RTP November 2021)
(ii) Shareholders’ Fund/Reserve & Surplus
(iii) Current liabilities/Other Current Liabilities
(iv) Contingent Liabilities and Commitments
(v) Shareholders’ Fund/Share Capital
Q.4 Medha Ltd. took a loan from bank for ` 10,00,000 to be settled within 5 years in 10 equal half-yearly instalments with interest. First instalment is due on 30.09.2020 of ` 1,00,000.
Determine how the loan will be classified in preparation of Financial Statements of Medha Ltd. for the year ended on 31st March, 2020 according to Schedule III. (MTP October 2020)
Ans. : As per Schedule III, a liability should be classified as current when it satisfies any of the following criteria:
(i) it is expected to be settled in the company’s normal operating cycle;
(ii) it is held primarily for the purpose of being traded;
(iii) it is due to be settled within twelve months after the reporting date; or
(iv) the company does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting date.
In the given case, instalments due on 30.09.2020 and 31.03.2021 will be shown under the head ‘other current liabilities’.
Therefore, in the balance sheet as on 31.3.2020, ` 8,00,000 (` 1,00,000 × 8 instalments) will be shown under the heading ‘Long-term Borrowings’ and ` 2,00,000 (` 1,00,000 × 2 instalments) will be shown under the heading ‘Other Current Liabilities’ as current maturities of loan from bank.
Q.5 (a) Futura Ltd. had the following items under the head “Reserves and Surplus” in the Balance Sheet as on 31st March, 2013: Amount ` in lakhs
The company had an accumulated loss of ` 250 lakhs on the same date, which it has disclosed under the head “Statement of Profit and Loss” as asset in its Balance Sheet.
Comment on accuracy of this treatment in line with Schedule III to the Companies Act, 2013.
(b) Sumedha Ltd. took a loan from bank for ` 10,00,000 to be settled within 5 years in 10 equal half yearly instalments with interest. First instalment is due on 30.09.2013 of ` 1,00,000.
11.4
FINANCIAL STATEMENT OF COMPANIES
Determine how the loan will be classified in preparation of Financial Statements of Sumedha Ltd. for the year ended on 31st March, 2013 according to Schedule III. (RTP November 2013, RTP November 2017) Ans.
(a) Part I of Schedule III provides that debit balance of Statement of Profit and Loss (after all allocations and appropriations) shall be shown as a negative figure under the head ‘Surplus’. Similarly, the balance of ‘Reserves and Surplus’, after adjusting negative balance of surplus, shall be shown under the head ‘Reserves and Surplus’ even if the resulting figure is in the negative. In this case, the debit balance of profit and loss i.e. ` 250 lakhs exceed the total of all the reserves i.e. ` 230 lakhs. Therefore, balance of ‘Reserves and Surplus’ after adjusting debit balance of profit and loss is negative by ` 20 lakhs, which should be disclosed on the face of the balance sheet.
(
b) As per Schedule III, a liability shall be classified as current when it satisfies any of the following criteria:
(i) it is expected to be settled in the company’s normal operating cycle; (ii) it is held primarily for the purpose of being traded;
(iii) it is due to be settled within twelve months after the reporting date; or
(iv) the company does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting date.
In the given case, instalments due on 30.09.2013 and 31.03.2014 will be shown under the head ‘other current liabilities’ as per criteria (c).
Therefore, in the balance sheet as on 31.3.2013, ` 8,00,000 (` 1,00,000 × 8 instalments) will be shown under the heading ‘Long-term Borrowings’ and ` 2,00,000 (` 1,00,000 × 2 instalments) will be shown under the heading ‘Other Current Liabilities’ as current maturities of loan from bank.
Q.6 (i) Vasudha Ltd. provides following information:
Raw Material stock holding period: 3.5 months
Work-in-progress holding period: 1 month
Finished goods holding period: 4.5 months
Debtors collection period: 6 months
You are required to compute the operating cycle of Vasudha Ltd.
What would happen if the trade payables of the company are paid in 14 months-whether these should be classified as current or non-current liability?
(ii) The management of Kshitij Ltd. contends that the work in progress is not valued since it is difficult to ascertain the same in view of the multiple processes involved. They opine that the value of opening and closing work in progress would be more or less the same. Accordingly, the management had not separately disclosed the work in progress in its financial statements. Comment in line with Schedule III.
(November 2013, 5 Marks)
Ans.
(i) According to Schedule VI “An operating cycle is the time between the acquisition of assets for processing and their realization in cash or cash equivalents”.
Therefore, operating cycle of Vasudha Ltd. will be computed as: Raw material stock holding period + Work-in-progress holding period + Finished goods holding period + Debtors collection period = 3.5 + 1 + 4.5 + 6= 15 months
A Liability shall be classified as current when it is expected to be settled in the Company’s normal operating cycle.
Since the operating cycle of Vasudha Ltd. is 15 months, trade payables expected to be paid in 14 months should be treated as a current liability.
(ii) Schedule III does not require WIP to be disclosed in the Statement of Profit and Loss, thus amounts for which WIP have been completed at the beginning and at the end of the accounting period may not be disclosed. Therefore, the non-disclosure in the financial statements by the company may not amount to violation of Schedule III if the differences between opening and closing WIP are not material.
PROBLEMS - MANAGERIAL REMUNERATION
Part I: Theory Questions:
Q.7 The Companies Act, 2013 limits the payment of managerial remuneration.
What is the maximum managerial remuneration, which can be paid in case of a company consistently earning profits and has more than one managerial person?
Ans.
(November 2009, 2 Marks)
Companies Act, 2013 prescribes the overall maximum managerial remuneration payable and also managerial remuneration in case of absence or inadequacy of profits.
In the given case, the company is earning profits consistently and has more than one managerial person; therefore, the maximum limit is 10% of net profit.
11.6
STATEMENT OF COMPANIES
Q.8 The Managing Director of A Ltd. is entitled to 5% of the annual net profits, as his remuneration, subject to a minimum of ` 25,000 per month. The net profits, for this purpose, are to be taken without charging income-tax and his remuneration itself. During the year, A Ltd. made net profit of ` 43,00,000 before charging MD’s remuneration, but after charging provision for taxation of ` 17,20,000.
Compute remuneration payable to the Managing Director. (June 2009, 2 Marks)
Ans.
Computation of remuneration of the Managing Director:
Particulars ` in Lacs
Minimum remuneration to be paid to the Managing Director (` 25,000 per month × 12) 3.00
Therefore, remuneration to be paid to the Managing Director of A Ltd. = ` 3,01,000.
Q.9 The following is the Draft Profit & Loss A/c of Brown Ltd. the year ended 31st March, 2020:
Depreciation on fixed assets as per Schedule II of the Companies Act, 2013 was ` 5,15,675.
You are required to calculate the maximum limit of managerial remuneration as per Companies Act, 2013. (January 2021, 5 Marks) Ans.
Computation of net profit u/s 198 of the Companies Act, 2013:
Particulars ` `
A/c
Less : Administrative, selling and distribution expenses (4,99,200 + 1,18,200 + 95,225)
Depreciation on fixed assets as per Schedule II5,15,675(13,92,700) Profit u/s 198 26,73,190
Maximum Managerial remuneration under Companies Act, 2013 = 11% of ` 26,73,190 = ` 2,94,051
Q.10 The following is the Draft Profit & Loss A/c of M Ltd., the year ended on 31st March, 20X1: To Administrative, Selling and distribution expenses 8,22,542By Balance b/d 5,72,350 By Balance from Trading A/c 40,25,365 To Directors fees 1,34,780By Subsidies received from Govt. 2,73,925 To Interest on debentures31,240 To Managerial remuneration2,85,350 To Depreciation on fixed assets 5,22,543 To Provision for Taxation12,42,500
Depreciation on fixed assets as per Schedule II of the Companies Act, 2013 was ` 5,75,345.
11.8
FINANCIAL STATEMENT OF COMPANIES
You are required to calculate the maximum limits of the managerial remuneration as per Companies Act, 2013. (MTP August 2018, RTP May 2020 (Figures × 5 Times))
Ans.
Computation of Net Profit:
Thus, Maximum Managerial remuneration = 11% of ` 27,35,383 = ` 3,00,892.
Q.11 Following is the draft Profit & Loss Account of X Ltd. for the year ended on 31st March, 2020:
of
You are required to calculate the maximum limits of the managerial remuneration as per Companies Act, 2013. (November 2020, 4 Marks) Ans.
Computation of net profit of X Ltd. as per the Companies Act, 2013: Particulars ` `
Maximum Managerial remuneration under Companies Act, 2013 = 11% of ` 29,34,550 = ` 3,22,800 (rounded off).
Q.12 The following is the Draft Profit & Loss A/c of Brown Ltd. the year ended on 31st March, 2020:
Depreciation on fixed assets as per Schedule II of the Companies Act, 2013 was ` 5,15,675.
11.10
FINANCIAL STATEMENT OF COMPANIES
You are required to calculate the maximum limit of managerial remuneration as per Companies Act, 2013. (January 2021, 5 Marks)
Ans.
Computation of net profit u/s 198 of the Companies Act, 2013
Particulars ` `
Balance from Trading A/c
Add: Subsidies received from Government 38,15,890 2,50,000 40,65,890
Less: Administrative, selling and distribution expenses (4,99,200 + 1,18,200 + 95,225) 7,12,625
Director’s fees 1,35,940
Interest on debentures 28,460
Depreciation on fixed assets as per Schedule II5,15,675(13,92,700)
Profit u/s 198 26,73,190
Maximum Managerial remuneration under Companies Act, 2013 = 11% of ` 26,73,190 = ` 2,94,051
Part III:
Computation of Effective Capital for Managerial Remuneration in case of loss-making company:
Q.13 Calculate the maximum remuneration payable to the Managing Director based on effective capital of a non-investment company for the year, from the information given below:
S. No.Particulars (` in’000)
(i)Profit for the year (calculated as per the Companies Act, 2013)
(ii)Paid-up capital
(iii)Reserves & surplus
(iv)Securities premium
(v)Long-term
(vi)Investment
(vii)Preliminary expenses not written off
(viii)Remuneration paid to the Managing Director during the year
(Nov. 2011, 5 Marks)
