Q.Classify the following items under major heads and sub-heads (if any) in the Balance Sheet of a company as per Schedule III, Part I of the Companies Act, 2013.
You're viewing a preview — the full solution, concept, methods & PYQ mapping are locked.
Start your 14-day free trial to unlock the full solution →Mining Rights → Non-current Assets: Intangible Assets; Income received in advance → Current Liabilities: Other Current Liabilities; Capital work in progress → Non-current Assets: Property, Plant and Equipment.
Concept and Treatment: Balance Sheet Presentation under Schedule III
Schedule III, Part I of the Companies Act, 2013 prescribes the format for a company's Balance Sheet. The classification hinges on two fundamental questions: Is the item an asset or a liability/equity? And is it current (realised/settled within twelve months or the operating cycle) or non-current?
Assets are resources controlled by the company from which future economic benefits are expected. They split into:
- Non-current Assets: held for more than one year, further divided into (a) Property, Plant and Equipment (tangible fixed assets and capital work-in-progress), (b) Intangible Assets (identifiable non-monetary assets without physical substance), (c) Financial Assets, and (d) Other Non-current Assets.
- Current Assets: expected to be realised within twelve months or the operating cycle.
Liabilities are present obligations whose settlement will result in an outflow of resources. They split into:
- Non-current Liabilities: obligations not due within twelve months.
- Current Liabilities: obligations due within twelve months or the operating cycle, including trade payables, other current liabilities (advances from customers, income received in advance, statutory dues), and short-term provisions.
The debit-credit rule underlying classification: assets (debit balance) appear on the assets side; liabilities and equity (credit balance) appear on the equity and liabilities side. The nature of the item—whether it represents a resource owned, an obligation owed, or an advance received—determines its major head.
Solution: Classification of Items
(i) Mining Rights
Mining rights are an intangible asset—a legal right to extract minerals, without physical form but with identifiable future economic benefit. They are acquired for use over multiple years.
Classification:
- Major Head: Non-current Assets
- Sub-head: Intangible Assets
Mining rights appear under "Intangible Assets" alongside goodwill, patents, trademarks, and similar rights. They are amortised over their useful life or the lease period.
(ii) Income Received in Advance
Income received in advance (also called unearned revenue or advance from customers) represents money collected for services or goods not yet delivered. It is a liability—the company owes the performance obligation to the customer. Since it will typically be settled (by rendering the service or delivering the goods) within the next twelve months, it is a current liability.
Classification:
- Major Head: Current Liabilities
- Sub-head: Other Current Liabilities
Schedule III groups items like advances from customers, income received in advance, and statutory dues payable under "Other Current Liabilities." This is distinct from trade payables (amounts owed to suppliers for goods/services purchased on credit).
Do NOT classify income received in advance under "Short-term Provisions." Provisions are for uncertain obligations (e.g., warranty provision); income received in advance is a definite liability with a known amount.
(iii) Capital Work in Progress …
Unlock everything free for 14 days
- Full step-by-step solutions
- Concept-first explanations
- Methods, shortcuts & mistakes
- PYQ mapping + timed mock tests
Full access for 14 days. No credit card required.