Final Accounts of Companies — Important Questions

Computer Software

Step 1: Fixed Assets are divided into Tangible and Intangible assets. Step 2: Tangible assets are those which can be physically seen and touched – Land, Buildings, Plant & Machinery, Vehicles, Office Equipment, Loose Tools, Live Stock, etc. Step 3: Intangible assets have value but no physical existence – Goodwill, Trademarks, Brands, Computer Software, Patents, Copyrights, Logos, Designs, etc. Step 4: Computer Software cannot be physically touched; it is a program/application that has economic value. So it is an Intangible Fixed Asset. Step 5: Capital Work-in-Progress is a separate sub-categor

Shareholders' Funds → Reserves and Surplus (as a negative figure)

Step 1: When a company incurs a net loss, the Statement of Profit and Loss has a debit balance. Step 2: As per Schedule III, this debit balance (loss) is disclosed under the sub-head 'Reserves and Surplus' within 'Shareholders' Funds'. Step 3: It is shown as a negative figure (in brackets), which reduces the total of Reserves and Surplus. Step 4: If the negative balance of Surplus exceeds the other reserves, the resulting figure under Reserves and Surplus will itself be negative. Step 5: This treatment ensures that the true financial position is reflected. A common mistake is to show it as an

Non-current Liabilities → Long-term Borrowings

Step 1: Public Deposits are amounts accepted by companies from the general public for a fixed tenure, usually more than one year. Step 2: In the absence of specific information about whether they are short-term or long-term, they are assumed to be long-term by convention. Step 3: Long-term borrowings include all secured and unsecured loans, bonds, debentures, and deposits (including public deposits) that are repayable after 12 months. Step 4: Therefore, Public Deposits are shown under Non-current Liabilities → Long-term Borrowings. Step 5: They are further sub-classified as 'Unsecured' since t

Stores and Spares

Step 1: Inventories under Current Assets include items like Raw Materials, Work-in-Progress, Finished Goods, Stock-in-Trade, Stores and Spares, Loose Tools, and Goods-in-Transit. Step 2: Stores and Spares are materials kept for use in the production process or maintenance – they are a type of inventory and belong here. Step 3: Bills Receivable is shown under Current Assets → Trade Receivables (amounts owed to the company for goods/services). Step 4: Prepaid Expenses (e.g., prepaid insurance) are shown under Current Assets → Other Current Assets. Step 5: Cash-in-Hand is shown under Current Asse