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 :
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Start your 14-day free trial to unlock the full solution →Calls in advance are classified under Current Liabilities, Mining rights under Intangible Assets (Non-Current Assets), and Loose tools under Inventories (Current Assets) as per Schedule III, Part I of the Companies Act, 2013.
The Balance Sheet of a company, as per Schedule III, Part I of the Companies Act, 2013, is structured to provide a clear and comprehensive view of its financial position. It categorizes assets and liabilities into major heads and further into sub-heads, ensuring consistency and comparability across companies. Understanding the nature of each item is crucial for its correct classification.
Let's examine each item:
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Calls in advance:
- Concept: Calls in advance represent money received from shareholders for share calls that have not yet been made by the company. From the company's perspective, this amount is a liability because it has received funds for which shares are not yet fully called up. The company either has to adjust this amount against future calls or, in certain circumstances (like forfeiture), refund it.
- Treatment (Balance Sheet Presentation): Since this amount is repayable or adjustable within the normal operating cycle (typically within 12 months for most companies), it is classified as a Current Liability. Specifically, Schedule III places it under the sub-head Other Current Liabilities.
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Mining rights:
- Concept: Mining rights are legal entitlements acquired by a company to explore, extract, and sell minerals from a specific geographical area. These rights are valuable assets that provide future economic benefits to the company over an extended period. They are not physical in nature but represent a legal right.
- Treatment (Balance Sheet Presentation): Because mining rights are held for long-term use (typically more than one accounting period) and are not physical assets, they are classified as Non-Current Assets under the sub-head Intangible Assets.
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Loose tools:
- Concept: Loose tools are small, inexpensive tools (e.g., spanners, hammers, drills) used in the production process or for maintenance activities. While they are assets, their individual value is often low, and their useful life might be short or difficult to track individually. They are typically consumed or replaced within a short period, often within the operating cycle.
- Treatment (Balance Sheet Presentation): Due to their nature of being consumed in operations and their relatively short life, loose tools are generally not capitalized as Property, Plant and Equipment. Instead, they are treated as part of the company's Current Assets. Specifically, Schedule III classifies them under the sub-head Inventories, often within "Stores and Spares" which is a component of inventories.
Do not confuse "Calls in advance" with "Calls in arrears". Calls in arrears represent amounts due from shareholders on calls already made but not yet paid, and these are shown as a deduction from Share Capital. Calls in advance are a liability. …
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