Q.Show 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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Stock-in-trade appears under Current Assets → Inventories; Motor Vehicles under Non-Current Assets → Property, Plant and Equipment; and Provision for Tax under Current Liabilities → Provisions.
Concept and Accounting Treatment
Schedule III to the Companies Act, 2013 prescribes the format for financial statements of companies. The Balance Sheet must classify assets and liabilities into Non-Current and Current categories, with further sub-classifications under major heads.
The classification follows these principles:
Assets are divided into:
- Non-Current Assets: items held for more than one year (Property, Plant and Equipment, Intangible Assets, Financial Assets, etc.)
- Current Assets: items expected to be realized within twelve months or the operating cycle (Inventories, Trade Receivables, Cash, etc.)
Liabilities are divided into:
- Non-Current Liabilities: obligations due beyond one year (Long-term Borrowings, Deferred Tax Liabilities, etc.)
- Current Liabilities: obligations due within one year (Trade Payables, Short-term Borrowings, Provisions, etc.)
Each item in the question requires proper classification based on its nature and the time period criterion.
(a) Stock-in-trade
Stock-in-trade represents goods held for sale in the ordinary course of business. It is inventory that will be converted into cash within the operating cycle. Under Schedule III, all inventories are classified as Current Assets.
The major head is Inventories, which includes:
- Raw materials
- Work-in-progress
- Finished goods
- Stock-in-trade (for trading companies)
- Stores and spares
(b) Motor Vehicles
Motor vehicles are tangible assets used in business operations for more than one year. They are classified as Non-Current Assets under the major head Property, Plant and Equipment.
Property, Plant and Equipment includes all tangible fixed assets like land, buildings, plant and machinery, furniture, vehicles, etc. These are shown at cost less accumulated depreciation and impairment losses.
(c) Provision for Tax
Provision for tax represents the estimated liability for income tax on the current year's profit. Since tax is payable within the next financial year (typically within the assessment year), it is a Current Liability.
Under Schedule III, it appears under the major head Provisions within Current Liabilities. This head includes provisions for employee benefits, warranties, and other obligations of uncertain timing or amount.
Do not confuse Provision for Tax (current liability) with Deferred Tax Liability (non-current liability). Provision for Tax is the current year's tax payable, while Deferred Tax arises from timing differences between accounting and tax treatment.
Solution: Balance Sheet Presentation
Balance Sheet Extract (Vertical Format as per Schedule III)
| Particulars | Note No. | Amount (₹) |
|---|---|---|
| I. EQUITY AND LIABILITIES | ||
| (1) Shareholders' Funds | ||
| (2) Non-Current Liabilities | ||
| (3) Current Liabilities | ||
| (a) Short-term Borrowings | ||
| (b) Trade Payables | ||
| (c) Other Current Liabilities | ||
| (d) Short-term Provisions | ||
| Provisions | ||
| Provision for Tax | xxx | |
| II. ASSETS | ||
| (1) Non-Current Assets | ||
| (a) Property, Plant and Equipment | ||
| Tangible Assets | ||
| Motor Vehicles | xxx | |
| (b) Intangible Assets | ||
| (c) Financial Assets | ||
| (d) Other Non-Current Assets | ||
| (2) Current Assets | ||
| (a) Inventories | ||
| Stock-in-trade | xxx | |
| (b) Trade Receivables | ||
| (c) Cash and Cash Equivalents |
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