Q.Classify the following items under major heads and sub-heads (if any) in the Balance Sheet of the 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 →Prepaid expenses are shown under Current Assets → Other Current Assets; Capital Work-in-Progress under Non-Current Assets → Capital Work-in-Progress; Interest accrued and due on debentures under Current Liabilities → Other Current Liabilities.
Let’s understand the logic first. The Balance Sheet under Schedule III, Part I of the Companies Act, 2013, is divided into two sides: Equity & Liabilities and Assets. Each item must be placed under the correct major head (e.g., Non-Current Assets, Current Liabilities) and, where applicable, a sub-head. The classification depends on the nature of the item — whether it is expected to be realised or settled within 12 months (current) or beyond (non-current).
- Prepaid expenses — These are expenses paid in advance, such as insurance or rent, for which the benefit will be received in the next accounting period. They represent a right to receive future economic benefit in the form of services. Since they are typically realised within 12 months, they are a current asset. Under Schedule III, they fall under the sub-head Other Current Assets (which includes items like prepaid expenses, advances other than those for capital expenditure, and accrued income).
- Capital Work-in-Progress — This refers to assets under construction (e.g., a building being built, machinery being installed) that are not yet ready for use. They are not intended for sale and will be used in the business for more than one year. Hence, they are a non-current asset. The major head is Non-Current Assets, and the sub-head is Capital Work-in-Progress (shown under ‘Property, Plant and Equipment’).
- Interest accrued and due on debentures — This is interest on debentures that has become due for payment (i.e., the due date has passed) but has not yet been paid. It is a liability — the company owes this amount to debenture holders. Since it is payable within 12 months (interest is usually due semi-annually or annually), it is a current liability. Under Schedule III, it is shown under the sub-head Other Current Liabilities (which includes interest accrued but not due, interest accrued and due, and other statutory liabilities). …
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